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Understanding Index Funds IN " 3 MINUTES "

Updated: Apr 10

WELCOME TO MONEY TRAIN



TODAY LET'S READ AND LEARN ABOUT INDEX FUND SCHEMES.


WE WILL TRY TO ANSWER THE QUESTION


WHAT MAKES THEM AN ATTRACTIVE INVESTMENT OPTION ??


MOST OF US MUST HAVE HEARD ABOUT NIFTY AND SENSEX.


THERE ARE A TOTAL OF MORE THAN 1600 COMPANIES LISTED ON NSE AND MORE THAN 5000 COMPANIES LISTED ON THE BSE.


MOST POPULAR INDICES, THE NIFTY 50 INDEX HAS TOTAL OF 50 COMPANIES AND

SENSEX HAS 30 COMPANIES.


HEAD TO THIS VIDEO BELOW FOR A KICKSTART


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THIS IS NIFTY 50 AS ON 31st MARCH 2020 MADE UP BY











THESE COMPANIES RESPECTIVELY.


BREAKING THIS CHART------------> WILL HELP US UNDERSTAND BETTER.

EVERY PIECE WE SEE IN THIS CHART HAS IT’S OWN





1) MANAGEMENT

2) BUSINESS GROWTH STRATEGY

3) PROFITABILITY

4) MARKET PRICE

5) BUSINESS SPECIFIC RISKS


Over TIME THESE PIECES EITHER GAIN MORE SHARE /WEIGHT IN NIFTY 50 OR LOOSE THEIR EXISTING SHARE.


THIS GAIN /LOSS DEPENDS ON :-


1) MACRO ECONOMIC FACTORS

AS WELL AS

2) THEIR BUSINESS STRATEGIES.


THIS IS ONE OF THE SCENARIO OUT OF INFINITE POSSIBILITIES.


THIS CHART BELOW DEPICTS RISE IN WEIGHT OF RELIANCE, TCS, ICICI BANK LTD, INFOSYS LTD.


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ALTERNATE SCENARIO


THIS NEXT CHART DEPICTS RISE IN WEIGHT OF HDFC BANK, TCS, ICICI BANK LTD, KOTAK BANK.

SINCE THESE ARE THE LARGEST COMPANIES OPERATING IN INDIA, THEY HAVE BETTER ACCESS TO RESOURCES TO HANDLE TOUGH TIMES


WITH GROWTH OF EARNINGS-----------> THEIR VALUE RISE-------------> TAKING NIFTY UP AND

WHEN THE EARNINGS FALL--------------> THEIR VALUE (MARKET PRICE)---------> FALLS that takes------------> NIFTY down.

A CUMULATIVE EFFECT OF SUCH RISE AND FALL IN THE VALUE OF ALL SUCH COMPANIES AFFECT VALUE OF NIFTY INDEX.


MUTUAL FUND NIFTY INDEX SCHEMES ALSO INVEST IN THESE SAME PIECES, IN THE SAME PROPORTION AS IN NIFTY INDEX.


AS A RESULT THE NAV OF THESE SCHEME UNITS RISE WITH RISE IN VALUE OF NIFTY AND FALL WITH FALL IN THE PRICE OF NIFTY 50.


RIGHT NOW DUE TO COVID-19 IMPACT WE HAVE SEEN THAT NAV OF THESE INDEX FUND SCHEMES ARE FALLING SINCE IT TRACKS NIFTY INDEX/ SENSEX INDEX THAT HAS FALLEN FROM LIFE HIGH OF 12430 AND 42,273 RESPECTIVELY ON JANUARY 20, 2020.


SUBSCRIBE TO https://www.moneytrain.info/ TO GET LATEST UPDATES RELATED TO MUTUAL FUNDS.


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