Index mutual funds: 5 key reasons to invest in them during bull run

livemint.com:

crash on Thursday, Nifty50 has risen significantly in the recent past. New records are made only to be breached within a few weeks, if not days. Emkay Institutional Equities predicted Nifty50 to climb 11 per cent and touch 24,000 by December 2024.

This is the kind of rally, which invariably lifts all boats. Investment advisors, therefore, advise small investors to simply mirror the broader index instead of taking an investing call time and again. Let us first understand what exactly index mutual funds are.

Index mutual funds create a portfolio which mirrors a market index. The securities included in the portfolio and their weights are the same as that in the index. The fund manager does not rebalance the portfolio based on their view of the market.

These funds are passively managed, which means that the fund manager makes only minor, periodic adjustments to keep the fund in line with its index. These funds, therefore, offer the same return and risk represented by the index it tracks. The fees that an index fund can charge is capped at 1.5 per cent.

1. Index on a rise: This year is likely to be good for the large caps in general, predict investment experts. So, investors are recommended to invest in index mutual funds.

“It is a good time to get an exposure to index mutual funds when the spike is expected in large caps whereas small and mid-caps have already hit their highs," says Sridharan Sundaram, founder of Wealth Ladder Direct. ALSO READ: Investors should reexamine their perceptions during the bull run. This is how 2. Overpriced markets: As of now, the price to equity (P/E) ratio of Nifty50 hovers around 22.66 while the average P/E ratio is 20.