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What Are Index Funds In India?

By Aamirbasha
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An index fund is a kind of mutual fund with a portfolio developed to track the segments of a market index (a single number which represents a market and tracks its ups and downs). There are many index funds, though not all index funds work in the same way. Their costs and structure can vary.

 

What Are Index Funds In India?
Some examples of index mutual funds in India, include the UTI Nifty Index Fund, Reliance Index Fund, SBI Nifty Index Fund, etc. Typically, these funds would track indices like the S&P CNX Nifty or the BSE Sensex in India.

Advantages and dis-advantages of index fund?

Advantages:

  • Index funds are designed for steady, long-term growth.
  • They are tax efficient as their turnover is low.
  • Index funds are relatively low-risk options for investing in stocks and bonds.
    You can pay attention to the other things such as your job business than on the funds in your portfolios due to low risk factor
  • They are inherently diversified, representing many different sectors within an index, which protects against deep losses.
  • Index funds offer lower fees for investors than non-index funds. if a non-index fund outperforms index funds, it must perform better by a certain margin to generate returns that overcome the fees that it charges.
  • By investing in index funds, you can achieve the market average returns.
  • Invest in an index fund and you know that there is a 4 out of 5 chance that you will do better than investing in non index or actively manged funds. If you have placed your money into an actively managed fund then there is an 80 per cent you would end up with less money.
  • Over the long-term you will be much better off and won't have to worry about beating the market every year. That's because you'll be earning the market return with your index funds.

Disadvantages:

  • The flexibility is less when compared to managed funds as index funds must follow policies and strategies that require them to attempt to perform in tune with an index, whereas actively managed fund have more flexibility to act to find better-performing options in good times or in bad.
  • There is an opportunity cost to using index funds.
  • There is limited possibility of massive gains, as compared to individual stocks. But still index funds' performance remains more steady compared to non-index funds.
  • Like many other mutual funds or investments, index funds are still vulnerable to market volatility, and systemic risk.
  • If the market itself is heavily involved with stocks that are unsafe or just inflated in value, then the inevitable crash destroys the value of your index fund. Whereas, a managed fund can avoid them or use "Buy low, sell high" mantra.
  • If you don't like a company for moral or personal reasons but that company is on your index, there is no way of removing your money from that company without exiting the index fund entirely.
 

Conclusion:

"A low-cost index fund is the most sensible equity investment for the great majority of investors, "Buffett told Bogle in "The Little Book of Common Sense Investing." By periodically investing in an index fund, the know-nothing investor can actually out-perform most investment professionals."

GoodReturns.in

Read more about: index funds mutual funds
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