Portfolio construction suggestions for Index investors
Considering the growing popularity of Index investing, here are some portfolio construction suggestions to consider.
What is Index investing #
Index investing is a long-term investment strategy that aims to match the performance of a specific market index. It's a passive approach compared to actively trying to pick individual stocks that will outperform the market.
There are some advantages to index investing:
Lower Costs: Index funds typically have lower fees compared to actively managed funds since they require less research and management.Diversification: By inheriting the composition of the index, you gain diversification across different companies and sectors.Market Returns: The idea is that over the long term, the market will generally trend upwards, and index investing offers a way to capture that growth.
Large cap index portfolio #
This portfolio caters to risk-averse investors seeking capital preservation with potential for growth. This portfolio proposes a focus on large-cap Indian equities, aiming to outperform the Nifty 50 Index while maintaining a conservative risk profile. Recommend to invest equally into both funds.
Suggested funds #
- DSP Nifty 50 Equal Weight Index Fund Direct Growth
- Motilal Oswal S&P BSE Enhanced Value Index Fund
Large and mid cap portfolio #
This portfolio targets investors with a moderate risk tolerance, aiming for a balance between capital growth and volatility.
The portfolio emphasizes diversification within the large-cap and mid-cap segments of the Indian equity market. It seeks to achieve returns that exceed the Nifty Next 50 Index while acknowledging the inherent risk associated with this strategy.
Suggested funds #
- Motilal Oswal S&P BSE Enhanced Value Index Fund
- Edelweiss Nifty Midcap150 Momentum 50 Index Fund
All market cap portfolio #
This portfolio caters to investors with a higher risk tolerance seeking aggressive growth potential, while sticking to Index style investing. This portfolio proposes a diversified approach across the large, mid, and small cap segments of the Indian equity market.
Exposure to mid and small cap companies offers the potential for amplified returns compared to large cap equities. However, these segments also experience greater volatility.
I recommend a 45, 30, 25 split amongst the funds respectively. If you want to lower your small cap investment volatility, suggest you pick Edelweiss Nifty Smallcap 250 Index Fund instead of Kotak Nifty Smallcap 50 Index Fund.
Suggested funds #
- Motilal Oswal S&P BSE Enhanced Value Index Fund
- Edelweiss Nifty Midcap150 Momentum 50 Index Fund
- Kotak Nifty Smallcap 50 Index Fund or, Edelweiss Nifty Smallcap 250 Index Fund
Disclaimer: I am neither a professionally certified financial analyst nor, a MF advisor/distributor. The above suggested funds are picked from my own research and should be considered only as an advice/suggestion. Thorough research is recommended before any investment decisions are made.