By Mike Barret 
Stock market investment requires an understanding of various important concepts like fundamental and technical analysis to select the best stocks. Moreover, thorough research is needed to pick the best companies that can generate exponential returns on investment. As a beginner investor with a low risk-taking appetite, index funds can serve as a more reliable and cost-effective option. With investments in the top 50 or 500 companies that make a broader market index like NIFTY, investors can minimize their risk and take the benefit of positive index returns without indulging in active market research and investment. With stable returns and diversified investment options, index funds are a perfect option for beginner investors who wish to enter the world of stock market investment.
Systematic Investment Plans or SIPs in index fund schemes help investors generate a large investment corpus which is better than compared to one-time investment. A mutual fund sip calculator can help investors in the calculation of the best SIP amount and overall returns they can generate by considering past performance and return percentage. The following aspects must be taken care of for index fund investment:
1. Right mutual fund scheme selection:
Different mutual fund companies offer their index fund scheme that investors can select based on their preference and after thorough consideration of various aspects. Positive past performance, stable returns, low expense ratio, and 5-star rating by rating agencies are essential prerequisites of an index fund scheme. Investors must factor in all the essential aspects and select an index fund with reliable performance.
2. Systematic investment
Investors must even opt for monthly fixed investment options to take the benefit of diversified average return over a long period. A system investment plan can help with the generation of a substantial investment amount along with better average returns as compared to the broader market index.
3. Low expense ratio
Index funds are not actively managed funds. They do not require the assistance of professional mutual fund managers. This results in a low expense ratio. Investors must therefore select a mutual fund scheme with a low expense ratio ranging between 0.15 – 0.3%. A reputed fund house with a low expense ratio is essential for better returns and protection of investment outlay.
Benefits of index fund investment
1. Market return
The return from Index funds is similar to broader market returns like NIFTY or SENSEX. This helps investors who limited knowledge about the stock market to get better returns as compared to fixed deposits and other fixed-income generating securities.
2. Simple cost-effective investment
Index funds also serve as the simplest forms of stock market investment allowing investors to generate good returns without actively researching and market evaluation. With a low expense ratio and risk, investors can generate an average of more than 10% returns from simple SIPs into index funds.
3. SIPs
The best part of index funds is the diversification across various companies with a large capital outlay. Moreover, investors can opt for SIPs into the index funds to get better returns when the broader index falls due to various reasons like price fluctuations, changes in government policies, or profit booking by investors.
Index funds are suitable for beginners and investors who wish to take low risk for their stock market investment journey. Investors must include at least one index fund in their portfolio for diversification that can generate positive returns over a long period ranging between 5 to 10 years.
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