How to invest in the BSE SENSEX Index
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Based in Mumbai, India, the S&P/BSE SENSEX (also known as the S&P Bombay Stock Exchange, the Sensitive Index, or just the SENSEX) could offer the perfect investment opportunity for you. There are multiple ways to invest in Indices, so we’ll take you through the entire investing process, step by step.
Where can I buy into the BSE SENSEX Index?
What is the S&P/BSE SENSEX?
It is an index that consists of 30 blue-chip stocks listed and traded on the Bombay Stock Exchange. These stocks represent some of the largest companies in India, with a focus on the industrial sector.
Is it a good investment?
It can certainly be a good investment, under the right conditions. This index features lots of liquidity, with a market capitalisation of around $1 trillion. The Indian economy has a lot of potential for growth in the coming years, so investing now could be a great decision if you want to profit from growth in India. Keep in mind that this index trades in Indian rupees; if you’d prefer to trade in US dollars, the DOLLEX-30 index gives you access to the same 30 stocks, but with the added ability to invest with US currency.
How do I invest in the S&P/BSE SENSEX?
If you want to invest in the index, you should follow these three steps:
- Choose an investment type
- Use our top tips to succeed
- Choose a platform to invest with
1. Choose investment type
You might choose one investment type based on low transaction fees or another based on the quality of the investment advice that’s offered. Here’s a look at the methods you can use to invest:
An ETF (exchange-traded fund) is an investment fund traded on a stock exchange. You can buy the ETF during regular stock market hours, something you can’t do with some other diversified investment products. ETFs include batches of assets such as commodities or bonds, or a grouping of stocks such as those found in the SENSEX. By being invested in 30 stocks at once, an ETF lets you benefit from diversification, without being forced to pay the high fees that can come with other investment types.
A more active method of investing is to try and own only the top stocks in the index. To do that, you’ll need to buy a selection (or all 30) of the stocks tracked by the index, then reduce your portfolio until you have a smaller batch of elite holdings. This method is more time-consuming and expensive than buying one diversified investment such as an ETF or a mutual fund, but it does give you more control and considering that the index in question tracks only 30 stocks, it is a viable option in this case.
A mutual fund is an investment fund run by a professional money manager; money from investors is pooled and then the fund is managed to realise maximum profits for everyone. You can buy a mutual fund through a broker, or from the company that administers the fund. An S&P/BSE SENSEX mutual fund (also called an index fund) enables you to invest in all of the index’s stocks at once, the same as with an ETF. Mutual funds are different from ETFs in two ways, though: you can only buy and sell them at the end of the stock market’s trading day (not during regular market trading hours), and they cost more to trade and own than ETFs do. Mutual funds are best suited to investors who wish to buy and hold for the long term, rather than trade their investment.
2. Use our top tips to be a successful investor
Before you invest, it’s best to map out an investment plan ahead of time. Check out our top tips to make that happen:
- Do your research. Your research should start by studying how the index has performed both recently and historically. After that, you can analyse how investing in the index compares to other investments. Finally, figure out your goals, including the types of gains you’re hoping to land and the size of the losses you can reasonably tolerate.
- Set a budget. By budget we mean both your personal risk tolerance and the amount of money you can afford to lose. To manage your risk, set a stop-loss order after you make your investment, so that you can limit the size of your potential loss if the investment doesn’t go your way. Letting your losses pile up can damage your confidence and your ability to afford to make future trades.
- Select the right platform. Pick an investment platform based on your specific goals. If all you care about is getting the lowest transaction fees, that’s very different from prioritising detailed investment advice. It’s best to consider questions like this before you select the platform you want to use to invest.
- Grow your investments gradually. Beginner investors should consider starting slowly by investing just a small amount of money at first. You can always get more aggressive with your investment approach as you get better and more experienced at investing.
- Think long-term. To land big gains when investing, a buy-and-hold approach could be a good idea. If you’re going to try to buy and hold the index for a longer stretch of time, make sure to analyse the market closely to ensure you put your money in at the right time, and you can sell your position if a bear market starts to develop.
3. Choose a platform to invest with
To help you decide the best option for you, we’ve summarised the most popular platforms that can be used to invest an index like the SENSEX:
- Brokers & trading platforms. Online brokers offer helpful tools that make investing both simple and inexpensive. If saving money on transaction fees is your top priority and you’re an independent investor, this is the best way to start trading. That said, most online stock brokers don’t provide in-depth investment advice. If you’re looking for higher-level investment guidance, it would be a good idea to consider a different method for investing.
- Robo advisors. Robo advisors execute trades through algorithms, which keeps transaction costs relatively low (although not as low as with a broker). Some robo advisors will also allow you to discuss your hands-free investment strategy with a human being, providing yet another advantage in terms of creating a winning strategy. Robo advisors don’t tend to offer the same level of investment guidance that a top financial advisor does, though.
- Financial advisors. Financial advisors provide in-depth investment advice and customer care. They’ll review your financial goals, explain various investment options, and help manage your investments over time. Financial advisors charge more for their services than what you’ll pay using other investment methods, as the service they provide is the most customised. That extra cost can sometimes be worth it, but it’s worth considering that investing in any index is relatively straightforward nowadays, so a financial advisor may be an unnecessary expense in this case.
- Banks. Investing in the SENSEX with your bank gives you the convenience of keeping all of your financial ventures (such as your checking account, savings account, and mortgage, as well as your investments) with one institution. The drawback is that banks charge high fees for this convenience, without providing the benefits of a financial advisor. Unless convenience is your top priority, banks are rarely the best option.
Ready? Here’s our top recommended broker
What should I do now?
If you’re ready to invest, simply log into your chosen platform’s website, select the specific type of investment you want to make, then click buy. Once you’ve invested, make sure you follow financial news that might affect the S&P/BSE SENSEX. That way, you can make informed decisions about whether to hold or sell your investment, depending on the state of the market.
Try some of our investment courses for beginners
If you’re not feeling ready to invest yet, no problem. You can hone your investing skills by reading the easy-to-understand investing courses and informative news updates that we offer here at Invezz.
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