Index Funds: The One Investment You Should Think About.



Index funds are mutual funds or exchange-traded funds (ETFs) that are passively managed to mimic popular market indices such as the NSE-NIFTY50and the BSE-SENSEX.

The Fund Manager's role is simple, simply invests in all of the stocks that comprise the index to be followed.

The weightage of the stocks in the fund closely matches the weightage of each of the stocks in the index. Index funds have a lower expense ratio because they are passively managed.

Index funds are a passive investment, the fund manager simply copies the Index while building the fund's portfolio and attempts to keep the portfolio in sync with the index at all times.

If a stock's weight in the index changes, the fund manager must buy or sell units of the stock for its weight in the portfolio to match that of the index.

While an actively managed fund strives to outperform its benchmark, the role of an index fund is to simply match the performance of its index.

An index fund's stocks are typically those of well-established companies that are unaffected by market fluctuations.

This means that the index funds' returns are consistent, and the risk of losing the entire investment is almost non-existent.

Index funds, in general, are appropriate for investors with a long investment horizon. Investing for 10-15 years may provide good returns.

Typically, the fund experiences many fluctuations in the short run, which averages out over time, say, more than seven years, to generate healthy returns.


The stock market is volatile & risky. Consult a professional investment advisor before making any investment decisions!

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