Why investing in the banking industry through index funds is a winner's move

Investing in the banking industry is the equivalent of investing in the entire economy. In this post, I will discuss why and how one should invest in the banking business.

 

Why should you put money into the banking industry?

 

Banking is the lifeblood of a country's economy. Banking and economic growth are intertwined. Because the Indian economy is anticipated to outperform other economies in the future, the banking sector will follow suit. Due to different restrictions imposed by Indian tax rules on cash transactions, more and more transactions are taking place through banking systems.

The government's plan in the budget to implement the core banking system in Indian post offices will enhance the banking sector by allowing millions of post office account holders to trade online throughout the banking sector. One of the reasons for investing in this industry is that non-performing assets (NPA) levels are decreasing as a result of the banking sector's clean-up. This sector is also projected to do better in the future. As a result, an ordinary investor would be wise to invest in the banking sector at this time.

 

Why invest through an Index Fund in equity?

 

Direct equities investment is a full-time profession that necessitates extensive knowledge and expertise, which none of us possess. It also requires picking up the right company for making investment as well as continuous monitoring of the investee company. So it makes sense for an individual investor to invest through investment banking firms in India, either in an index fund or diversified mutual fund scheme.

 

An index fund, like other open ended equity mutual fund schemes, allows you to invest in a lump sum or over time via the Systematic Investment Plan (SIP) and Systematic Withdrawal Plan (SWP). It makes more sense for an average investor to invest through an index fund because it imitates the underlying index, whose constituents are evaluated on a regular basis to weed out non-performing stocks. Another advantage to choosing an index fund over investing directly in numerous firms is that an index fund allows you to invest in several companies at the same time with a modest amount of money, such as five thousand rupees for a one-time investment and 500-1000 rupees through SIP and SWP. You do not need a demat account to invest in a mutual fund scheme, which makes it quite convenient.

 

Furthermore, a significant number of active mutual fund schemes in investment banking companies in India have been unable to beat their benchmark in recent years, particularly since SEBI categorized mutual funds with an attached requirement to invest a minimum of their corpus in a specific segment of the market capitalisation and a higher expenses ratio, so it makes sense for you to invest through index funds, which have a very low expenses ratio.

 

Overall, investing in the banking sector of the economy is a sound financial decision!