How to Invest in Bank Nifty?

Bank Nifty and Nifty50, the two major index which are traded in high volume in the share market. But apart from trading, you can invest in index as well. So, the question here how to invest in Bank Nifty?

It seems to be confusing, right?

Because in general, one can either buy futures or options contract of bank nifty and each of these derivatives contract comes with an expiry so how to hold the index for long term.

Isn’t it impossible and even if you buy bank nifty for far expiry it would be so costly because of high premium. So, what is the way to buy bank nifty for long term.

Let’s solve this puzzle.

How to Buy Bank Nifty for Long Term?

You have heard about trading bank nifty in the derivatives market but you can invest in Bank Nifty through mutual funds as well. But before we move ahead let’s understand what does stock market index indicate?

Index analyze and tells the performance of top listed companies in the share market. Like for example, Bank Nifty tracks and display the performance of top 12 banks listed in the Indian share market.

Now moving forward and understand how to invest in Bank Nifty?

You might have read or heard about index mutual funds, the replicate the market index like bank nifty and gives you the chance to earn high return in long term.

Let’s take an example to understand how to invest in Bank Nifty.

Navi Nifty Bank Index fund that gives the annualized return of around 18.75% which is almost equal to the Bank Nifty performance which increased by 19.36% in last one year.

Now what is this index fund. It is actually a mutual fund that comprises of Bank Nifty companies and help you gain equivalent to corresponding index. So, instead of trading in Bank Nifty if you have invested in this mutual fund you would have earned return equal to Bank Nifty performance in the market.

So now it is clear that one can invest in Bank Nifty but the question is HOW?

Well, for that you need to open a mutual fund account or you can directly make an investment using your demat account.

To open a new account follow the steps below:

  1. Choose the mutual fund or brokerage platform.
  2. Enter your details; name and mobile number.
  3. Now complete the KYC details.
  4. On verification and validation your account will be activated.
  5. Now add funds in the account.
  6. Select the index fund in which you want to invest.
  7. Select the investment period.
  8. Click on ‘Submit’ button.

What to Know Before Investing in Bank Nifty Index Funds?

No doubt investing in index funds like Bank Nifty is beneficial and offer high return in the favorable condition but as the investment rule, one must always consider few parameters before you buy Bank Nifty for long term.

Some of these parameters to be considered before you invest in share market are:

  • Analyze Risk & Return 

Market is highly volatile but in comparison to index, index funds are less volatile and hence less risky. Also, it offers a similar return as the market index. Hence the overall return depends on the factor like economic conditions (on which the performance of index depends), performance of underlying stocks (in this case top 12 banks listed under Bank Nifty, etc.

So, analyzing and predicting the growth of the underlying listed companies help you in predicting the risk and return of the specific index funds.

  • Make Proper Investment Plan

Even if you are looking for passive investment by investing in Bank Nifty since a proper planning of capital, holding period, etc must be made. In general, these index funds give you a better and stable return in a long term.

  • Consider Tax Percentage

The return in index funds like Bank Nifty comes under tax slab and along with that the tax depends upon your holding period. For example, the STCG (Short Term Capital Gain) is imposed on return if the holding period is less than 1 year. It is equal to 15%.

On the other hand, the tax imposed in the LTCG (Long Term Capital Gain) is 10% in which the holding period is 10% on profit earned.

Is Bank Nifty Good for Long Term Investment?

There are many benefits of investing in Bank Nifty in comparison to trading. One of the major benefit of investing in Bank Nifty is that it beats the short term volatility risk of the market.

Other than this, index funds are easy to manage. However, whether is investing or trading, one must acquire complete knowledge of the subject before putting their capital in the market.

If you are beginner or want to know more about investment strategies in index like Bank Nifty or Nifty50 then enroll and join stock market classes now.

Before investing capital, invest your time in learning Stock Market.
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