{"id":30498,"date":"2024-05-30T10:35:20","date_gmt":"2024-05-30T05:05:20","guid":{"rendered":"https:\/\/kuvera.in\/blog\/?p=30498"},"modified":"2024-05-30T10:35:20","modified_gmt":"2024-05-30T05:05:20","slug":"invest-in-index-funds-for-wealth-creation-heres-why","status":"publish","type":"post","link":"https:\/\/kuvera.in\/blog\/invest-in-index-funds-for-wealth-creation-heres-why\/","title":{"rendered":"Invest in Index Funds for Wealth Creation: Here’s Why"},"content":{"rendered":"

If you are new at investing, Index Funds are your best choice. Why you ask? First, no hassle of tracking the market. Second, no need to rebalance your portfolio all the time. Wealth creation is no longer for just finance professionals.\u00a0<\/span><\/p>\n

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Want to know more about Index Funds? Click here<\/a>.<\/p><\/blockquote>\n

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Let\u2019s take Vinayak\u2019s case.<\/span><\/p>\n

Vinayak B, 30, has always struggled with saving money since he started earning. Weekends are for long drives and eating out with friends and family. In addition to the usual banter when hanging out with his friends, he often finds them discussing stock markets and one friend bragging about multibagger stocks. These conversations have gotten Vinayak interested in investing in the stock market. After playing with a few stocks here and there, Vinayak decided that tracking daily movements was not his cup of tea. He moved to investments in <\/span>mutual funds<\/span><\/a> after learning the basics of <\/span>stocks<\/span><\/a> on social media.<\/span><\/p>\n

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\"Start<\/a><\/b><\/h4>\n

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Many Indians like Vinayak are now regularly investing in the stock market through the mutual fund route. The preference is for systematic investment plans, popularly known as SIPs. The numbers also speak volumes about this trend. According to the Association of Mutual Funds in India (AMFI), SIP accounts hit a high of 8.7 crore by April 2024, and the money invested is on the rise. There has been a tectonic shift in the way Indians are saving since the COVID-19 pandemic. Gone are the days when bank deposits were the first choice for savings. Rapid digitisation with the advent of UPI, e-KYC, etc., along with wealth management platforms like <\/span>Kuvera<\/span><\/a>, has made it simple and easy for investors to make mutual fund investments.<\/span><\/p>\n

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While there is heightened interest, investors are often confused about which MF scheme to choose from the hundreds available in the market. For first-time investors, selecting schemes that are not aligned with their goals may turn out to be counterproductive. Understanding suitable schemes that align with your goals is not an easy task.<\/span><\/p>\n

Set a <\/span>goal<\/span><\/a> now!<\/span><\/p><\/blockquote>\n

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But there is no need to worry. A <\/span>passive style of investment<\/span><\/a> can help you in wealth creation without worrying about market volatility and other such risks.<\/span><\/p>\n

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Before understanding the passive style of investment for wealth creation, let\u2019s understand passive vs. active investments. Under an active style, fund managers buy and sell stocks based on their expertise, in-depth research, economic trends, and the future potential of certain companies. The idea is to find stocks that are available at cheaper valuations but with greater potential for massive returns. Moreover, actively managed funds aim to generate higher returns than benchmark indices. However, these schemes also have higher expense ratios, which can potentially lower the returns of investors.<\/span><\/p>\n

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Passive style, on the other hand, is simple and easy to understand. It is almost like a DIY (do-it-yourself) investment and hence it is increasingly gaining popularity among investors. Investors just need to select a bunch of index funds, without having to spend time worrying about scheme selection or reviewing portfolios every now and then, especially during times of market volatility. On Kuvera, details like expense ratio, fund performance, etc., are available for you to read before investing.<\/span><\/p>\n

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Ace investor Warren Buffet once famously said: \u201cBy periodically investing in an index fund, for example, the know-nothing investor can actually outperform most investment professionals. Paradoxically, when \u2018dumb\u2019 money acknowledges its limitations, it ceases to be dumb.\u201d<\/span><\/p>\n

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Passive funds are broadly of two types: <\/span>index funds<\/span><\/a> and exchange-traded funds. Simply put, these funds follow a particular index. For instance, an index fund based on India\u2019s benchmark index Nifty 50 will invest in stocks that are part of the index. The allocation to each stock will also be replicated based on the weightage of the company in that particular index.<\/span><\/p>\n

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Advantages of Passive Investment with Index Funds:<\/b><\/h4>\n