Knowing all about Index funds and Why Invest in them

An index mutual fund is typically based on the market indexes and gives a broader exposure as compared to other types of mutual funds that focus on specific industries. Keep reading this article to know more about these funds and how they work.

Investments have always been one of the most popular ways of ensuring that you increase your wealth. When you invest in mutual funds, you are looking to put in a particular amount of money every month and getting good returns on the same over a period. Index mutual funds are a form of mutual funds that have low risk and steady returns over a period.

Index mutual funds have been gaining recognition in the market because of its advantages over actively managed mutual funds. So, let’s break down what index mutual funds are and how they work!

What are Index funds?

In simple words, it is a form of passive investing. When you invest in Index funds, you do not see the fund managers constantly buying and selling funds to increase the returns. This helps to reduce the amount of money you spend on expenses and as fees!

Index mutual funds are used to gain steady wealth over a longer period as compared to equity funds and mutual funds because you are not putting all your trust in one, big fund or trust.

What do Index funds invest in?

So, if you are planning to invest in an index fund, you surely need to know where your money is getting invested in. The portfolio of an index fund is created similar to the components of a market index. This will help to track and match with the funds in which your money is being invested in.

It has a set of rules and regulations that it needs to follow at all times, no matter what the state of the market at that moment.

The market index can differ from company to company as your portfolio is modelled after only one market index. In India, the index fund portfolios are created similar to Nifty or exchange-trade derivatives that your fund manager plans on investing in.

This means that your investment is split and invested in the top 50 companies that are part of the Nifty NSE Index.

What are the objectives of an index fund?

Before you decide to invest in an index fund, you need to know what you will gain from it. An index fund is not a short term saving or investment fund where you can get high returns at once. An index mutual fund works just the way the market index works and makes changes according to it, so you won’t have to look at the ups and downs constantly.

Along with this, you get long term gains and reduce the amount of fees and expense ratio that you will have to pay.

With core holdings being tracked by the market, it is an ideal investment for your retirement as well!

Index mutual funds perform better than actively managed mutual funds in the current market scenario which is why more and more people are currently looking towards investing in this too. There are many advantages of opting for index mutual funds so if you are interested, check out the different index mutual funds available in the market before applying for it!

 

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