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Tips to invest in Nifty 50 ETF funds

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Index investing through mutual funds offers a high level of diversification and the opportunity to reap a relatively better return potential by investing in some of the top companies in India. Nifty 50, for instance, is one of the most popular indices used in India to track market movement. As the name indicates, it tracks the performance of the top 50 Indian companies in terms of market capitalisation. The Exchange-Traded Funds (ETFs) tracking Nifty 50 are called Nifty 50 ETFs.

Now that you know what Nifty 50 ETFs are, you need to have a few Nifty 50 fund investment tips up your sleeve.

  • Table of contents
  1. Align your investment goals
  2. Compare the fund size and trading volume
  3. Factor in the expenses
  4. Keep an eye on the tracking error
  5. FAQ

4 tips to invest in Nifty 50 ETF Funds

Here are a few Nifty 50 fund investment tips to help you get started on your Nifty Fifty ETF investment journey:

Align your investment goals

First and foremost, you must align your Nifty Fifty ETF investment with your financial goals. It will help you decide how much you want to invest, whether to invest a lumpsum or start a SIP, and how long you want to hold the investment among other things.

Compare the fund size and trading volume

When you start looking for Nifty 50 ETF investment tips, you will realise that you need to compare many Nifty Fifty ETFs based on different factors to choose the one suitable for you. One of the most important factors is the size of the fund. A large fund size indicates higher investor interest and, consequently, higher liquidity. A larger trade volume also affirms that the fund is in demand.

Factor in the expenses

Nifty Fifty ETFs, like all other Exchange-traded Funds, can be traded on the stock exchange like stocks. The transaction and other charges levied on the purchase and sale of ETFs on the stock market are borne by the investor. The expense ratio of the fund is another cost that can eat into the returns of your Nifty 50 ETF.

Keep an eye on the tracking error

The returns of a Nifty 50 ETF depend on the performance of the stocks of 50 companies comprising Nifty 50. This affects the returns offered by the fund. Tracking error is the difference in the performance of the index and the performance of the fund. The lower the value, the better the fund is at tracking the index.

To conclude, Nifty Fifty ETFs make it easy to invest in the top 50 companies in India across different sectors. They mirror the performance of the underlying index, Nifty 50, subject to tracking error. With a Demat account, you can easily buy and sell them on the stock exchange. You can even find Asset Management Companies (AMCs) that offer Systematic Investment Plans (SIPs) for Nifty 50 ETFs. It is a powerful investment vehicle that can help you achieve your investment goals.


Why Should I Invest in Nifty 50 ETFs?
A: If you want to start investing in the Indian stock market, Nifty 50 ETF can be a good option. Here are three simple reasons why you should invest in a Nifty Fifty ETF: it is a relatively lower-risk investment as compared to pure equity investment; it offers higher liquidity; and it gives you the opportunity to get a reasonable return potential since it tracks the top 50 companies in India.

What is the role of tracking error in Nifty Fifty ETFs?
A: Nifty 50 is an index that comprises the top 50 companies, in terms of market capitalisation, in India listed on the National Stock Exchange (NSE). The smaller the value of the tracking error, the better. A lower tracking error value indicates how well the fund can replicate the Nifty 50 index.

Can I start an SIP for a Nifty 50 ETF?
A: Yes, some fund houses offer SIPs for Nifty 50 ETFs. If you want to invest in a Nifty 50 ETF with a Systematic Investment Plan (SIP), you need to open a demat account and set the investment amount, investment frequency and duration with your broker. You will receive the fund units in your demat account. The Net Asset Value (NAV) of the ETF is calculated at the end of each trading day. You can hold or trade your units at any time on a trading day.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.