Think your money could work harder for you? Yes! Sounds like good news, yes? Let us prove this! A ₹10,000 investment in Nifty 50 back in 1999 would have grown into ₹1.4 lakh by 2023. That’s your money growing by itself while you sleep.

The Nifty 50 index fund is a simple way to invest in India’s top 50 companies. It’s perfect because it’s easy to understand and costs less than many other investments. 

But you might be wondering: How do I actually get started? This guide will show you exactly how to invest in Nifty 50 index funds. You’ll learn what makes them so cool and how they can help build your wealth over time. Let’s get started. 

What Makes Up the Nifty 50?

Instead of choosing 50 of the biggest companies in India to invest in, Nifty 50 offers you a ready option. Made up of India’s 50 biggest companies, it gives you an option for an easy kind of investment. These companies fall within different industries like banking, tech, oil, and consumer goods. Big names like Reliance, HDFC Bank, and Infosys are part of this group.

What makes it special? The Nifty 50 only counts shares that are available for public trading. This means it doesn’t include shares held by company owners or the government. 

Experts check and update which companies should stay in the index twice a year. Since its launch in 1996, the Nifty 50 has grown about 14% annually. It bounced back strongly even during tough times like the 2008 financial crisis or COVID-19. 

For example, if you invest ₹5,000 monthly for 20 years, you could potentially grow your money to ₹1.2 crore. Not too shabby, right?

Choosing Between Mutual Funds and ETFs

So, you’re interested in the Nifty 50, but what’s the best way to invest? You really have two main options: mutual funds and ETFs.

Mutual funds are perfect for new investors. You can start investing with just ₹500 each month. You don’t need any special account, and you can buy them straight from investment apps. The price updates once daily, and you’ll pay a small yearly fee between 0.1% to 0.5%.

ETFs work differently. You’ll need a special Demat account, but you can buy and sell them any time during market hours. They cost less yearly (0.05% to 0.2%), but you pay extra fees for trading. Each ETF unit costs about ₹150, and you must buy complete units.

Which is Best for Beginners?

Both ETFs and mutual funds are good options for investments. However, mutual funds can be an easier option for beginner traders. You do not have to understand  the deep details of everyday market analysis as all you need to do is invest and hold for a long term. 

ETFs work better if you know how to trade stocks and want to buy or sell during market hours. They cost less but need more active management.

Steps to Start Investing in Nifty 50 Index Funds

Find the Right Fund

When picking an index fund, focus on these key costs and quality measures.

Expense Ratio:

What we mean by expense ratio is your yearly fee. After all, the main goal of investing is generating some extra income. Based on that, the fee needs to be less. Actually, even a slight difference in the fee can mean better returns. Paying 0.1% instead of 0.5% means more of your money stays invested and grows over time. 

Tracking Error:

Since the index funds aim to track Nifty 50, the tracking needs to have low error. Ideally, it is best if the tracking is below 1%. Why is that? Because it means the fund closely follows the performance of this index. 

Fund Manager Reputation:

Reputation when it comes to fund management is important. You might find it strange since it is a form of passive funds. Yet, fund companies with good reputation can make your journey much seamless. Moreover, search for bigger-sized funds as those are more efficients and have lower costs. 

Start with a Demo Account:

When starting out in your investing journey, it is better to start with a demo account. A demo account allows you access to all the platforma features which you can explore without risking your money. Demo account gives investors the chance to practice their strategy and improve it before stepping into the real world of trading. 

Set Up Your Account

Once you are confident of your trading skills,you can open your live account. Before you can start investing in mutual funds in India, you need to complete a security check called KYC (Know Your Customer). Don’t worry – it’s a simple process to protect your money.

Pick Between One-Time or Monthly Investments

You have two main ways to invest in mutual funds: lumpsum (all at once) or SIP (bit by bit).

Lump Sum refers to this strategy in which you invest a large amount in one go. It is usually the choice of those who have extra money when the market prices go low. 

SIP (Systematic Investment Plan) is simpler. You invest a fixed amount monthly or quarterly. With this one, you have more freedom to choose the amount you buy each month. If you have more money, you can buy more, less money, you can go for less. 

With the SIP method, you can start investment with only ₹500 per month, set up your investments and hold them for a long time. 

Most people, especially beginners, do better with monthly investment funds because they’re less risky and easier to manage.

Why Monthly Investments Work Better

As mentioned before, monthly investments help you invest regularly without much effort. Here’s how they work:

• You choose a fixed amount to invest each month. This money goes into your chosen investment, no matter if markets are up or down. 

• When prices are low, your money buys more units. When prices are high, you get fewer units. 
• You don’t need to worry about perfect timing. Your investments happen automatically on set dates, taking emotion out of the process. 

How to Invest better and Aim to Grow Money with Nifty 50 

The real power of Nifty 50 investing comes from staying invested for many years. Here’s why:

Your money grows faster through compounding. What do we mean by that? We mean that once you make some returns, you can invest them again, to make extra returns of them.  For example, if you invest ₹5,000 monthly for 20 years with a 14% yearly return, your money could grow to ₹1.2 crore.

However, this is not easy to achieve as you need to keep your money invested even when markets do not seem to do very well. Why? Well, markets have proven to almost always bounce back. 

Don’t try to time the market. Instead, keep investing regularly and stay patient. 

Remember: Small, regular investments can grow into large amounts if you give them enough time. Small investments can also mean less risk. 

Think about taxes when you invest. You’ll pay more tax if you sell investments within three years. Holding investments longer often means paying less tax. Consider talking to a tax advisor to understand how taxes affect your investments.

Remember to rebalance your investments once or twice a year. This means adjusting them back to your original plan, which helps manage risk and can improve your returns.

Helpful Tools and Resources

Here are the best resources to help you invest wisely:

Online Tools: Use SIP calculators on ET Money to plan your investments. Track how your investments perform with portfolio-tracking apps. These tools help you make smarter choices about where to put your money.

Expert Help: Talk to a financial advisor who can guide you based on your goals and comfort with risk. Join investment workshops to learn more about the market and smart investing strategies.

Webinars and Seminars: In online webinars or offline seminars, you have the chance to meet experts and peer traders. You can ask each other questions and benefit from experiences.