scorecardresearchHow investing ₹5000 a month in this index fund could help you accumulate

How investing 5000 a month in this index fund could help you accumulate nearly 1.8 crore

Updated: 05 Jul 2022, 09:36 AM IST

Nippon India Index Fund - Direct Plan - S&P BSE Sensex Plan allows you to invest in the Sensex stocks altogether. This saves you from the hassle of investing in each of these stocks and then deciding your stock allocation accordingly. One may argue about the negative performance of the index owing to macroeconomic factors. However, in the long run, one benefits from market revival and consequent rise in stock prices. 

Benefiting from index returns

Benefiting from index returns

Not all people are able to invest in the stock market. The inability to analyse stocks or read charts has caused many people to lose as they speculate about stock movement without paying necessary attention to its intrinsic value or its possible movement in the future. Lack of knowledge regarding entry and exit of stocks is another matter of concern, thus, prompting many people to leave the market. The common misnomer that investing in stocks is equivalent to gambling underlines why only two per cent of investors are able to earn wealth from the market while the remaining continue to titillate between profits and losses regularly.

Benefiting from index movement

Investing in the stock market is a time-consuming affair as it necessitates regular studying of the market and stock analysis. To gain precision in stock selection, one must practice regularly. However, not all may be adept at stock-picking techniques nor may be willing to afford so much time to evaluate market movement. They can therefore invest in index funds that reflect stock market movement and yield returns accordingly to investors.

Putting money in index funds means that your money is getting invested in all the stocks listed in that index. This level of diversification entails low risk, thus, explaining its attractive returns over a period. A detailed study of index fund returns over the past 15-20 years reveals how many index funds have outperformed many actively managed funds.

Keeping investments diversified

Take the example of the Nippon India Index Fund - S&P BSE Sensex Plan which is affordable and allows investors to park their money in diverse stocks. This fund benchmarked against the S&P BSE Sensex Total Return Index has earned 12.32 per cent returns in the past five years. Considering how the market has been through severe ups and downs in the past five years due to Covid-19, consequent business slowdowns, geopolitical tension and other macroeconomic factors, those who had invested in this fund have surely gained returns that not only beat inflation but also helped them to create a sizeable corpus depending on the size and frequency of their investments.

This moderately high-risk fund came into existence on January 02, 2013. Investors have earned around 186.21 per cent returns since this fund’s inception, which means that 10,000 invested in 2013 has grown to 28,620.90 to date.

Calculations reveal how a systematic instalment plan (SIP) of 5000 started on January 02, 2013, accumulated to 9,90,734 at this rate. Since its inception, investors have earned nearly 11.71 per cent returns.

Yielding returns over the period

Clearly, past returns are not a guarantee of future returns. However, they give a a valuable insight on the fund and its manager's thinking and philosophy. One cannot just base their investment decision on the past returns and in no way investors can expect past performances to continue in the future, but they are an important benchmark in one of the many factors one must look at while deciding on the mutual fund to buy. 

Extrapolating the returns for investors interested in putting their money regularly for 10 years or more, we see the kind of returns that long-term investors may earn. For the purpose of calculation, let us assume regular monthly investments of 5000 over 10 years, 15 years, 20 years, 25 years and 30 years. The returns rate is assumed at 12 per cent.

Investment tenureTotal amount invested (in Rs)Estimated returns (in Rs)The total value of the investment (in Rs)
10 years6,00,0005,61,695111,61,695
15 years9,00,00016,22,88025,22,880
20 years12,00,00037,95,74049,95,740
25 years15,00,00079,88,17594,88,175
30 years18,00,0001,58,49,5691,76,49,569

The expense ratio of the underlying fund as of now is 0.15 per cent. The portfolio turnover ratio is much lower compared to its peers, which implies that the fund manager prefers a long-term approach to investing in stocks and bonds. This guarantees stability compared to the volatility that we see in most other fund movements.

How much can you invest?

Those interested to invest in this fund must put in at least 5000 with every application, and in multiples of 1000 in further lumpsum purchases. The minimum purchase amount is 100 for those who wish to invest through SIPs. Thereafter, the investors can invest in multiples of 100 subject to a minimum number of 12 instalments.

Returns comparison of several value funds highlight the following

Name of the fundTwo-year returnsThree-year returnsFive-year returns
HDFC Index Fund - S&P BSE Sensex Plan23.46%10.95%12.26%
LIC MF Index Fund - Sensex Plan23.05%10.81%11.89%
IDFC Nifty 50 Index Fund24.21%11.20%11.81%
Taurus Nifty Index Fund - Direct Plan24.29%11.22%11.68%

Asset allocation

A maximum part of the fund’s money is invested in the financial services sector followed by the technology, energy, consumer defensive and consumer cyclical sectors, thus, lending investors enough exposure to sectors that are growth-intensive, ubiquitous and essential to India’s economic progress. There are 30 growth stocks in this fund of which 89.91 per cent are in the large-cap category with the remaining investments occupying only 9.64 per cent of the fund.

There is an exit load of up to 0.25 per cent against redemption made within a week. The idea behind parking money in this fund is to avail from investing majorly in a well-diversified assortment of stocks of fundamentally strong companies.

Note: This article is for information purposes only. Please speak to your SEBI-registered financial advisor before making any financial or investment decision. 

Funds during volatility
First Published: 05 Jul 2022, 07:53 AM IST