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How to invest in NIFTY 50 index funds in 2023
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9/1082% of retail CFD accounts lose money.
It only takes a few minutes to invest in the NIFTY 50 index. One of the simplest and most popular ways to invest is to buy shares in a Vanguard NIFTY 50 ETF through an online trading platform.
Where can I invest in the NIFTY 50 index?
Copy link to sectionAccording to our expert research, Skilling is the best ETF broker to invest in NIFTY 50 index funds.
Both NIFTY 50 ETFs and NIFTY 50 CFDs are available to invest in through Skilling .
Here are three more places to buy the NIFTY 50, ranked according to their cost, security, and features.
82% of retail CFD accounts lose money.
How do I invest in the NIFTY 50 index?
Copy link to sectionThe easiest way is to sign up to a stock broker, open an investment account, and buy shares in an NIFTY 50 ETF or CFD. This guide explains how to do it:
Step 1. Sign up to Skilling
Copy link to sectionWe recommend using Skilling to invest in NIFTY 50. Sign up for a brokerage account and deposit some money. You may need to supply a form of photo ID to verify the account.
82% of retail CFD accounts lose money.
Step 2. Decide how to buy NIFTY 50
Copy link to sectionThis boils down to choosing between an NIFTY 50 ETF or CFD. ETFs are generally better suited to investors who want to passively track the NIFTY 50’s performance. CFDs offer a greater range of trading options: you can use leverage, short the index, or buy and sell it outside of trading hours.
Step 3. Invest in the NIFTY 50
Copy link to sectionSign into your trading account and search for the NIFTY 50. Hit the ‘buy’ button and enter the details of your purchase, such as how much you want to spend. Hit ‘buy’ again to execute the trade.
Step 4. Monitor your investment
Copy link to sectionWhen you buy a CFD, the trade goes through more or less instantly, and you’ll be able to see your new open position in your trading account. ETF purchases can take longer, and if you buy outside of traditional trading hours it won’t go through until the next morning.
Your trading account will show the price change in the NIFTY 50 since you bought it, so you can see your profit/loss at a glance. Use that information, along with your own research, to decide when to sell the NIFTY 50 and close your position, ideally at a profit.
The different ways to invest in the NIFTY 50
Copy link to sectionAs we mentioned above, there are numerous ways to put your money into the NIFTY 50. ETFs and CFDs are the simplest options for beginners, but there are alternatives. Here’s a brief overview of each option and who it’s best suited for.
NIFTY 50 ETFs
Copy link to sectionAn ETF (exchange-traded fund) is an investment fund traded on a stock exchange, much like a stock. Exchange traded funds can hold different assets, such as individual stocks, bonds, or commodities, or serve as a proxy for a stock market index.
An NIFTY 50 ETF is one way of investing in the NIFTY 50. It’s simply an investment fund that mirrors the performance of the NIFTY 50. When you buy shares in the fund, the value of your investment will rise or fall with the NIFTY 50 itself.
ETFs are ideal for new investors because they have a very low minimum investment. You can start with a few pounds and get exposure to some of the world’s largest companies. They’re also practical if you plan on trading the NIFTY 50 index, because you can buy or sell shares in the fund throughout the day.
Examples of popular NIFTY 50 ETFs
- iShares India 50 ETF (BXTRNIF$)
- Quantum Nifty ETF (QNIFTY)
- Nippon India ETF Nifty (NIFTYBEES)
NIFTY 50 index funds
Copy link to sectionAn index or mutual fund is an investment fund that aims to track the performance of a stock market index, such as the NIFTY 50. It’s very similar to an ETF, in that there are low management fees and you can buy shares through your online broker.
However, there are a couple of differences. NIFTY 50 index funds are only priced at the end of each trading day, so you can buy or sell shares in the fund once per day. There may also be a higher barrier to entry, through a much larger minimum investment when you invest in NIFTY 50 index funds.
That means an NIFTY 50 mutual fund is better suited for long term investors with a higher initial budget, where the infrequent trading and barriers to entry are far less of an issue.
Examples of popular NIFTY 50 index funds/mutual funds
- UTI Nifty 50 Index Fund
- Bandhan Nifty 50 Index Fund
- ICICI Prudential Nifty 50 Index Fund
NIFTY 50 CFDs
Copy link to sectionCFDs (contracts for difference) are a way to speculate on NIFTY 50 price changes with more flexibility than if you use an ETF or index fund. A CFD is a ‘derivative’, which means it gets its value from the underlying asset – in this case the NIFTY 50 – but it’s separate from it.
As a result, CFDs can be leveraged, where you borrow money to multiply the size of the trade, or they can be used to go ‘short’, where you place a trade on the index to fall in value. You can also buy and sell them outside of regular trading hours.
All of this means NIFTY 50 CFDs offer the potential to outperform a fund that passively tracks the NIFTY 50’s performance. Of course, you can also underperform it as well. Tools like leverage and shorting introduce a lot more risk, and are best left to experienced traders.
NIFTY 50 futures
Copy link to sectionFutures contracts are agreements to buy or sell the NIFTY 50 at an agreed price on a set date in the future. NIFTY 50 futures are a means to predict how you think the index is going to perform over a set time frame, such as the next three or six months.
Most futures contracts involve leverage, so you only put up a small part of the total trade value (the margin) when you buy one. That makes futures more risky, and they require a bit more financial expertise to understand as well.
Some traders use futures as a hedge against the performance of stocks they own. For instance, if you own stocks that are part of the NIFTY 50 then you might want to short the NIFTY 50 so that you still make some money if the price falls.
NIFTY 50 stocks
Copy link to sectionAnother way to invest in the NIFTY 50 is to buy shares in the individual stocks that the index tracks. It isn’t practical to buy every share in the index, but you can invest directly into a few of the most heavily weighted stocks in the NIFTY 50 in order to get broad exposure to its performance.
The most heavily weighted stocks in the NIFTY 50 tend to be the largest companies by market capitalisation. If you invest directly in those largest stocks, you gain exposure to the index without taking on the risk of all the underlying companies.
One reason to do this is that these larger companies with the highest market cap dominate the index anyway, so that it can give you the impression of a diversified portfolio while actually being reliant on the performance of those particular stocks.
For the NIFTY 50 index, the largest stocks you might choose to invest in are:
| Company | Index weighting |
|---|---|
| Reliance Industries (RELIANCE) | 10.34% |
| HDFC Bank (HDFCBANK) | 9.31% |
| ICICI Bank (ICICIBANK) | 8.04% |
| Infosys (INFY) | 6.68% |
| Housing Development Finance Corporation (HDFC) | 6.24% |
| ITC (ITC) | 4.44% |
| Tata Consultancy Services (TCS) | 4.31% |
| Larsen & Toubro (LT) | 3.43% |
| Kotak Mahindra Bank (KOTAKBANK) | 3.34% |
| Axis Bank (AXISBANK) | 3.08% |
The flip side of investing directly like this is that you lose the diversification and stability that comes with buying into an entire index. It requires much more hands-on management to do your own stock picking, so it’s best suited to more experienced investors.
How much does it cost to invest in the NIFTY 50 index?
Copy link to sectionFrom $0 to $5, depending on how you invest. For each option, you must consider the cost of buying the actual asset, whether that’s an ETF, index fund, CFD, or share, plus the fees associated with it.
| Instrument | Trading fee | Management fee |
|---|---|---|
| Exchange traded funds | $0-$5.99 | 0-0.2% |
| Index fund / mutual fund | $0-$5.99 | 0.1-2% |
| Individual stock | $0-$3 | None |
| CFD | $0 | None |
*A fee comparison of 3 leading brokers for example purposes
ETFs and CFDs are generally the cheapest option overall, as they have low fees and a low minimum investment. Index funds and mutual funds have low fees but may have a high minimum investment. Buying individual stocks is the most expensive option in absolute terms, because the share price of a single large company is often more than $100.
All options are likely to include a trading fee, which you pay each time you make a transaction. Some trading platforms offer zero-fee trading, with others it may be a few dollars.
Then ETFs and index funds each have their own expense ratio. Expense ratios refer to an annual management fee, charged as a percentage of your total investment. Expense ratios are usually no more than 0.05%, so if you invest $1,000, you would pay $5 per year in management fees.
Should I invest in the NIFTY 50 index?
Copy link to sectionYes, NIFTY 50 investing is a great choice if you’re looking for a safer investment with more price stability compared to picking individual stocks. It gives you an instantly diverse portfolio with exposure to a broad area of the stock market.
The flip side is that you have less control over which companies you invest in. An index committee decides how the index works, and you can’t pick and choose the underlying companies you like the most. The NIFTY 50 is better suited to hands-off investors, compared to those who have the skills, experience, and desire to pick their own stocks.
What are the advantages of investing in the NIFTY 50 index?
Copy link to sectionAn index provides instant stock market diversification, where you spread your risk across a large number of underlying companies, rather than one or two. Here are some more reasons why you might want to invest in the NIFTY 50 index:
- An easy way to invest in the growing Indian economy. The NIFTY 50 includes the largest companies in India. By investing in the index, you can benefit from these companies growing in value and from the performance of the Indian economy as a whole.
- Get an immediately diverse portfolio of stocks. A stock index includes shares in a range of different companies from varying industries. Investing in the NIFTY 50 gives you immediate access to all these stocks, so your portfolio is protected from a dip in performance in one sector of the economy.
- The NIFTY 50 is weighted towards finance and tech stocks. The index is weighted so that companies in the finance and tech industries make up more than half of the index’s total value. That means it’s a great way to invest in these industries in particular, rather than picking individual companies.
- You can start with a low minimum investment. If you invest in a NIFTY 50 ETF, you can start with just a few dollars. It’s much more accessible than investing in lots of individual stocks, which can cost tens or even hundreds of dollars per share.
- No need to spend time picking your own stocks. Indices are great for beginners and those investors who don’t have the time or expertise to pick stocks for themselves.
What are the disadvantages of investing in the NIFTY 50 index?
Copy link to sectionThe main risk of investing in the NIFTY 50 is that all the underlying companies are related in some way, so a broader economic downturn that affected the entire country would likely affect many stocks in the index at the same time. Here are some more risks of NIFTY 50 investing.
- A few companies dominate the index. The top three companies account for a third of the index, so a failure or dip in a company like Reliance Industries would have a major impact on the index’s performance. This means that while the NIFTY 50 appears diversified, its returns are heavily reliant on a small group of companies.
- All the stocks are geographically related. The NIFTY 50 provides diversification across different sectors of the economy, but all stocks are related because they’re based in the same country and susceptible to the same economic forces or government regulations.
- No way to beat the market. Stock indices like the NIFTY 50 are generally used as the benchmark for investor performance. By investing in the index, you can’t beat its performance, so your gains are more limited than if you picked your own stocks.
FAQs
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