\nBefore understanding an Index Fund, it is important to know that a Mutual Fund\u2019s performance is measured against its benchmark, which is an \u2018Index\u2019. An \u2018Index\u2019 consists of stocks or securities from a particular category, industry or is a general colletion of such securities. An Index is designed with a defined calculation methodology. S & P 500, BSE Sensex, Nifty 50 are some examples of an Index.<\/p>\n
An \u2018Index Fund\u2019 is a fund which invests in such an \u2018Index\u2019. The Fund Manager of an Index Fund buys securities in a proportion similar to that of the target Index. This means that an Index fund is a replica of its benchmark Index.<\/p>\n
Some features of an Index Fund are
\na) It is a diversified fund where the Fund Manager\u2019s only role is to select stocks as per their weightage in the Index
\nb) As it is a replica of the Index, performance of the fund would be similar to the returns from the Index
\nc) Index fund costs are very low
\nd) An Index Fund has the same risk as any other market related instrument, depending on the kind of assets it holds<\/p>\n
Investors can avail the following benefits from index funds:
\n1. Index Fund safeguards an investor from choosing a bad advisor or wrong fund by giving returns equal to the benchmark.
\n2. The expense ratio for an Index Fund is low as compared to an actively managed diversified fund. The cost difference adds to the long term compounding.
\n3. Index Fund investing removes the biases of a Fund Manager<\/p>\n
Before understanding an Index Fund, it is important to know that a Mutual Fund\u2019s performance is measured against its benchmark, which is an \u2018Index\u2019. An \u2018Index\u2019 consists of stocks or securities from a particular category, industry or is a general colletion of such securities. An Index is designed with a defined calculation methodology. S & […]<\/p>\n","protected":false},"author":67,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"footnotes":""},"categories":[12],"tags":[],"class_list":["post-4160","post","type-post","status-publish","format-standard","hentry","category-mutual-funds"],"_links":{"self":[{"href":"https:\/\/www.fisdom.com\/glossary\/wp-json\/wp\/v2\/posts\/4160","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.fisdom.com\/glossary\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.fisdom.com\/glossary\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.fisdom.com\/glossary\/wp-json\/wp\/v2\/users\/67"}],"replies":[{"embeddable":true,"href":"https:\/\/www.fisdom.com\/glossary\/wp-json\/wp\/v2\/comments?post=4160"}],"version-history":[{"count":0,"href":"https:\/\/www.fisdom.com\/glossary\/wp-json\/wp\/v2\/posts\/4160\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.fisdom.com\/glossary\/wp-json\/wp\/v2\/media?parent=4160"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.fisdom.com\/glossary\/wp-json\/wp\/v2\/categories?post=4160"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.fisdom.com\/glossary\/wp-json\/wp\/v2\/tags?post=4160"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}