Booming Stock Market Sets New Records, Despite Recent Crash
In the midst of recent market volatility, broader market indices have experienced a record-breaking run, with the Nifty50 index rising significantly. Despite a crash on Thursday, experts predict a continued climb for the Nifty50, which could reach 24,000 by December 2024, according to Emkay Institutional Equities.
This upward trend in the market is expected to benefit all investors, prompting investment advisors to recommend mirroring the broader index rather than making frequent investing decisions.
Understanding Index Mutual Funds
Index mutual funds are investment portfolios that closely mimic a specific market index. The securities included in the fund’s portfolio and their weights align with those of the chosen index. The portfolio is passively managed, meaning the fund manager makes only periodic adjustments to keep it in line with the index.
As a result, these funds offer similar returns and risks as the index they track. Additionally, the fees charged by index funds are capped at 1.5%, making them a cost-effective investment option.
Five Key Reasons to Invest in Index Mutual Funds
1. Favorable Market Conditions for Large Caps
This year is predicted to be favorable for large-cap stocks, making it an opportune time to invest in index mutual funds. While small and mid-cap stocks have already reached their highs, large-cap stocks still have room for growth, according to Sridharan Sundaram, founder of Wealth Ladder Direct.
2. Overpriced Markets Increasing Caution
The price-to-earnings ratio (P/E ratio) of Nifty50 is currently at 22.66, higher than the average P/E ratio of 20. This discrepancy, along with overpriced markets, raises concerns for conservative investors when considering riskier asset categories and stocks. Index funds provide a relatively safer option for investment, despite the higher valuation.
3. Volatility of Small Cap Stocks
During bull markets, small-cap stocks tend to experience increased volatility. To mitigate this risk, financial experts recommend opting for safer mutual funds like index funds rather than investing in small-cap stocks.
4. Long-term Safety
Index mutual funds offer stable long-term returns. Although they may not perform as well during broad-based market rallies, they tend to balance out over time. This makes index funds a safer choice compared to other investment options, according to Deepak Gagrani, Founder of Madhuban Finvest.
5. Growing Popularity
Index funds are gaining prevalence in the market. Currently, there are 197 index mutual funds available, and inflows into these schemes reached ₹2,988 crore in January, compared to ₹703 crore in December. This increasing popularity reflects the confidence investors have in index funds as an investment tool.
Overall, amidst a record-breaking market run, index mutual funds offer a safe and cost-effective means for investors to track market performance and secure consistent returns.
Analyst comment
Positive news: Booming Stock Market Sets New Records, Despite Recent Crash
Short analysis: Despite recent market volatility, the Nifty50 index has been rising significantly, and experts predict it will continue to climb, potentially reaching 24,000 by December 2024. This upward trend is expected to benefit all investors, prompting investment advisors to recommend mirroring the index with index mutual funds.
