Thread by @BahlKanan

Warren Buffett has asked his trustees to put

90% of his wealth in S&P500 Index Fund after his death🤯

Here is everything about Index Funds 👇 #IndexFund

1/ What is an Index❓

An index measures a subset of the stock market,

that helps investors compare the market performance over a time period

Nifty - Top 50 listed stocks by market cap in India
Sensex - Top 30 listed stocks by market cap in India

2/ What is an Index Fund❓

Index Fund is a passively managed Mutual Fund

It invests in such a way that it imitates a stock market indices like the

- Nifty,
- Next Nifty50,
- Sensex
- Bank Nifty etc

Contd..

Say, Reliance's (RIL) weight in Nifty is 10%, and for HDFC it is 7%

So, the Nifty50 Index Fund will have 10% in RIL and 7% in HDFC

Similarly, if the weights change to:
🔶RIL - 14%
🔶HDFC - 10%

Nifty50 Index fund will change proportionately to hold RIL at 14% and HFDC at 10%

3/ Why Index Funds at all?

- Underperformance by large cap funds
- Lower expense ratio

90% actively managed large cap funds returned lesser than Index in last 1 year

Despite charging 1-2% fees🤡

As of 31 Dec'21, 82.3% large cap funds returned lesser than Index for last 10 yrs

4/ Is it the same with Small Cap and Mid cap funds?

No!

Only 28% small /mid cap funds couldn't beat their respective benchmarks in last 1 year

i.e., BSE Small Cap Index and BSE Mid Cap Index

5/ What will be my returns?

Nifty50 has returned 12.24% CAGR in last 10 years

But "Yeh dil maange more?" 😋

Nifty stocks also give dividends

Nifty Total Returns Index (TRI) includes dividends also

Nifty TRI has been 13.64%

Will that be your return? Read on 👇

6/ Expense Ratio

So, there are people and expensive infrastructure required to replicate the Index returns for you

That comes with a cost

But thank god, it isn't a bomb

It varies from 0.05% - 0.35% of your investment value +/- gains

Lower the better, always? No! Read on 👇

7/ Tracking Error

Index Funds use algo to trade stocks wrt the changing proportion in Index

But due to margin/cash liquidity and other reasons

It is not possible to replicate the index absolutely

Tracking Error is the margin (%) by which fund couldn't match Index's TRI return

8/ How to choose Index Funds?

By placing weightage to both:
1. Tracking error and
2. Expense Ratio

I will share a sheet where we've analysed Nifty50 Index funds in this way

Will be shared in our free community - Link towards the end of the thread

9/ Can we save taxes while investing in Index Funds?

In India, Asset Management Companies (AMCs) can not have passively as well as actively managed ELSS schemes

Which reduce taxable income u/s 80C of Income Tax Act, 1961

IDFC MF launched Nifty50 Tax saver fund 2 days back

10/ What are different types of Index Funds in India?

- Nifty50
- Bank Nifty
- Nifty Next 50
- Nifty Small Cap
- Nifty Midcap
- Nifty Equal Weight Index
- Sensex Index Fund
- Nifty100
- Nifty BFSI Index
- Nifty 200 Momentum 30

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Will share the analysis here.

P.S. No recommendation. Please refer your SEBI registered investment adviser before taking any decision

Disclaimer: This is not an investment advice and rather just shared for educational and awareness purpose. Please onboard SEBI Registered Investment Adviser before taking any decision