How to invest in index funds in Groww?

How to invest in index funds in Groww: Diversification is a crucial element of a successful investment strategy. Gold, real estate, debt, and equities are just a few of the several asset classes that investors aim to diversify their holdings throughout. They strive to further diversify even within each asset class in order to lower risks.

You can diversify your equity portfolio, a well-known method for reducing equity investment risks, by buying shares of firms with varied market capitalizations and industries. Here, index funds are relevant.

We’ll talk about index funds, how to buy them, and how to invest in them in this blog.

What does Index Fund Means?

As suggested by its name, an index mutual fund invests in stocks that closely resemble stock market indices like the NSE Nifty, BSE Sensex, etc.

The managers of these funds invest in the same securities that are represented in the underlying index in the same proportion rather than changing the portfolio’s composition because they are passively managed. These funds seek to deliver returns similar to the index they track.

The Function of Index Funds

Consider an index fund that follows the NSE Nifty Index. There will be 50 equities in this fund’s portfolio, all of which will be distributed similarly. Bonds and equity-related products may both be included in an index.

The Index Fund makes sure to invest in each and every security that the index tracks. An index fund, which is passively managed, attempts to replicate the returns of its underlying benchmark, whereas an actively managed mutual fund strives to surpass its benchmark.

Advantages of Index Fund Investing

There are many advantages to index funds that you should be aware of when it comes to India. Index Funds, India offers a number of benefits, including:

Low Fees and a Lower Cost Ratio Since actively managed mutual funds often have higher expense ratios than index funds, you can invest more of your money where it will have the most significant impact on your portfolio.

Tax Advantages

Index Funds do not purchase and sell individual securities as frequently as actively managed mutual funds do since they are passively managed. Over time, this lowers their tax obligations and raises their after-tax returns.

Simple to Use Index Due to their inability to change their asset allocation easily, funds are also simpler to handle than actively managed mutual funds.

This implies that once you invest in an Index Fund, its asset allocation will not change until you elect to do so yourself or until a new manager replaces the one who is currently managing it.

Unbiased Investing

Index Funds make investments through an automated, legal method. The fund manager’s mandate specifies the amount to be invested in index funds of various securities. This removes human discretionary bias from investing decisions.

Things to Think About Before Investing in Index Funds for Investors

How to invest in index funds in Groww
How to invest in index funds in Groww

When looking for information on how to invest in index funds, investors should take the following factors into account.

Returns and Risks

Index funds are less volatile than actively managed equity funds since they passively monitor a market index. Therefore, there are fewer hazards. Index funds in India typically have positive returns during market rallies.

During a market downturn, it is typically advised to move your investments to actively managed equities funds. Your equity portfolio should ideally contain a well-balanced mix of actively managed funds and index funds.

Furthermore, as the index funds try to mimic the index’s performance, returns are comparable to the index. Tracking Errors, on the other hand, requires your attention. Therefore, you must hunt for an index fund with the lowest tracking error before investing.

Spending Ratio

The expense ratio is a minimal portion of the fund’s total assets that the fund house charges for fund management services.

The low expense ratio of an index fund is one of its main USPs. There is no need to develop an investment plan or look for stocks to invest in because the fund is passively managed. This lowers the expense ratio by reducing the cost of fund management.

Invest in Line With Your Investment Strategy

Investors with a 7-year or longer investment horizon are advised to use index funds. These funds are known to fluctuate in the near term, but over the long run, they tend to average out.

You might anticipate between 10 and 12% returns if you invest over a period of at least seven years. You can match these investments with your long-term investment objectives and maintain your investment for as long as you can.


Index funds are subject to capital gains tax and dividend distribution tax because they are equity funds, which means they are also subject to both taxes.

Tax on Dividend Distribution (DDT)

A 10% Dividend Distribution Tax (DDT) is withheld at the source prior to payment when a fund house pays dividends.

Tax on Capital Gains

An index fund unit redemption results in capital gains, which are taxable. The holding period, or the time during which you were invested, determines the capital gains tax rate.

  • Your capital gains with a holding period of up to one year are considered short-term capital gains (STCG), which are subject to a 15% tax.
  • Your capital gains with a holding time of more than a year are referred to as long-term capital gains (LTCG). Up to Rs. 1 lakh, LTCG is not subject to tax. Any LTCG above this threshold is subject to 10% taxation without indexation benefits.
  • Read Best Index Funds to Invest in India 2022 as well.

How Can Indians Invest in Index Funds?

Are you interested in purchasing index funds in India but have doubts regarding investing in index funds? If so, we have this covered for you. In this section, both online and offline methods are covered.

Online Procedure

Any safe website of your choice can be used to create a mutual fund account.

  • Complete your KYC requirements and go to the next level if you haven’t previously.
  • As needed, enter the pertinent data.
  • Select the fund or funds you want to invest in based on your financial goals.
  • Select the appropriate fund, then make the necessary transfer.
  • If you want to make a monthly SIP investment, you can also set up a standing order with your bank (systematic investment plan).

Offline Method

  • Completely and thoroughly fill out the application and KYC forms.
  • As required, include and enter the relevant data.
  • Select the fund or funds you want to invest in based on your financial goals.
  • Use your preferred payment method to pay the investment amount.
  • Set up BillPay, mandate, eNACH, ADF (Auto Debit Form), or OTM (One Time Mandate) digitally or physically if you want to make monthly SIP investments.
  • In summary, index funds have the potential to help you save a lot of money and may position you for future success.

Due to SEBI’s (Securities and Exchange Board of India) most recent categorization of mutual fund schemes, many financial planners in India are certain that index funds would eventually play a large role among the many investment possibilities.

The Indian stock market may be frightening, to put it mildly. There are hundreds of stocks, a large variety of financial instruments, and complicated lingo surrounding stock investing, making it appear like a challenging procedure.

Furthermore, it’s simple to get sucked into the risky world of day trading, where you purchase and sell stocks every day in an effort to maximize earnings by placing bets on rapid price movements.

However, if you are hesitant of taking chances and want to make long-term investments with modest returns and the benefits of Index Funds, it can be the ideal choice for you.


Q. Can I purchase Groww index funds?

Through any distributor of mutual funds, such as Groww, you can begin investing in index mutual funds. However, you must finish the required KYC process before making an investment. About 4-5 working days are needed to finish the KYC procedure. The requirement for investing in mutual funds is KYC compliance.

Q. How can I buy index funds?

You can purchase index funds directly from an index-fund provider, like Fidelity, or through your brokerage account. When you invest in an index fund, you obtain a variety of securities in one simple, affordable transaction.

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