What are Best Index Funds?

A mutual fund that invests in a larger market index, such as the Sensex or the Nifty, is known as an index fund. Furthermore, all equities that make up the Sensex and/or Nifty will be included in the investing portfolio. These funds allow investors to have access to a larger market sector at a lower cost.

The Sensex and Nifty indexes indicate the leading corporations in terms of free-float market capitalisation. Because the firms in both indexes are well-known and generate money, investors want to benefit from them. Because these indices are not stocks, but rather index constituents with the same weight as the index, investors must invest in index components with the same weight as the index.

How does the best Index Mutual Fund work?

An index fund follows a larger market index, such as the Sensex or Nifty, and its portfolio will contain the same equities in the same proportions as the Sensex or Nifty. Index funds are sometimes known as passive funds since they follow a certain index and do not require a lot of management.

The fund manager, who is in charge of the fund's investments, is in charge of the stocks that must be acquired or sold in accordance with the underlying benchmark's composition. In terms of return, the fund and the index have nearly identical results. The disparity between the two causes tracking inaccuracies, which the fund manager attempts to, eliminate.

Who should invest in an Index Fund?

• Investors should think about their investment over a lengthy period of time.
• If investors want to avoid regular portfolio monitoring and surveillance, index funds should be employed.
• When compared to actively managed funds, index funds have a lower expense ratio.
• If investors want a higher rate of return than a fixed deposit

How are Debt Mutual Funds Taxed?

The gains arising from debt mutual funds are taxed under Capital Gains depending on the holding period of the investment.

Short Term Capital Gain

STCG arises if the investment is held for less than 3 years from the date of investment in the fund

STCG is levied on the capital gain arising from investment in a debt fund held for a period of less than 3 years. The capital gain will be added to the total income of an investor and the rate of tax will be as per the income tax slab rate. The income tax slab rate depends on the net taxable income and age of the taxpayer

Long Term Capital Gain

LTCG arises if the investment is held for more than 3 years from the date of investment in the fund

LTCG is levied on the capital gain arising from investment in a debt fund held for a period of more than 3 years. LTCG is taxed at a rate of 20% after indexation.

Indexation is a method of calculating the effect of inflation on the underlying asset. This effect is calculated from the date of purchase to the date of sale of the investments.

Once indexation is applied, the purchase price is inflated. This provides an equilibrium in terms of inflation between the purchase price and sale price. Hence the quantum of capital gain is decreased due to indexation.

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