Q: I am new to investing in mutual funds. I can put around ₹5,000 every month. Should I start with index funds?
Why planning is important?
Being a new investor it is always better to take professional help to build a strong foundation for investment. Since SIP is one way of cultivating discipline in investors, the frequency of the investment shouldn’t matter. You should also go through risk profiling before making any decision so that you know about the suitability of various categories in a mutual fund based on risk capacity. You also need to evaluate investment not just based on returns but on the basis of your risk profile, investment duration which will ultimately guide you with the desired return. Find a one-time fee professional financial advisor to help yourself reach the desired goal.
Why buy Index funds?
Index funds are the best way of starting your investment journey in stock markets. Low in cost, these funds are based on an underlying index like NIFTY, SENSEX, etc. Index funds simply mirror the returns of that index. Index Funds are the most advocated way to invest by legendary investors like Warren Buffett for retail investors. Free from Fund Managers’ biases, index funds are automated equity portfolios of top companies.
Large-Cap Funds vs Index Funds?
Lastly, although it is recommended to invest in index funds, the large-cap mutual fund schemes have managed to outperform index funds over a longer period of time. Further, the large-cap fund mirrors the index fund with more flexibility to go beyond predefined stock baskets.
Disclaimer: All of the information I share here is strictly to educate my blog readers. Please do not consider any advice as a recommendation. Read the disclaimer.
