These are mutual funds that track one of the market indexes like Sensex or Nifty. The fund manager, here, does not get to select the stocks the fund will invest in. The fund portfolio will mirror the index that it tracks as accurately as possible. <\/p>\n
Sensex is an index derived from 30 most actively traded stocks on the Bombay Stock Exchange (BSE). Similarly Nifty is the benchmark index of the 50 most actively traded stocks on the National Stock Exchange (NSE). Now the fund \u201cHDFC Index Fund-S&P BSE Sensex<\/a>\u201d tracks Sensex where as \u201cHDFC Index Fund-NIFTY 50 Plan\u201d tracks the Nifty 50. <\/p>\n The main difference between index mutual funds and Exchange Traded Funds (ETFs) is that index funds track market movements via Net Asset Value (NAV) which updates only at end of trading day. Whereas, ETFs track underlying asset value movement on the fly, throughout the day. <\/p>\n If we compare mutual funds vs index funds vs ETFs, mutual funds and index funds are fundamentally the same except that index funds do not have the flexibility to pick stocks and their weightage in its portfolio. ETFs have an advantage in short term investments over indexed funds. But in the long term, they are almost the same. <\/p>\n Index funds are popular with long term investors with a low risk investment. Especially for people looking for some passive income ideas, index funds are a good choice since they provide good returns with diversified risk.<\/p>\n These funds mimic the composition of the chosen index. They are passively managed funds, which means there is no stock research, risk mitigation, diversification that needs to be done by the fund manager. All of this is automatically taken care of by the index. The objective is to depend on the returns of the index over a long period without buying and selling securities very often. <\/p>\n An index fund is a passively managed fund for the reasons mentioned above. Opposite to this, actively managed mutual funds often seeks alpha by doing more frequent purchases and sales, re balances to beat the market returns. <\/p>\n Primarily there are 2 types of index funds: <\/p>\n The funds that invest in stocks based on an index composition and weightage, is called an equity index fund. As opposed to this, a debt index fund tracks an index composed of Corporate Debt, Government Securities, Treasury bills, State Development Loans. <\/p>\n The best equity index fund is the ones that track the index as closely as possible. Ideally there should not be any difference between the index and the fund return but practically, there would be a slight deviation based on the time of tracking, weightage in the stock invested or rebalanced. <\/p>\n Investing in indexing funds has its pros and cons:<\/p>\n \u201cWhich index fund is best?\u201d or \u201cHow to choose an ETF?\u201d is the one-crore-\u20b9 question. Let\u2019s first understand that the \u201cindex\u201d is only an imaginary entity, a logical group of stocks. Investment in an index is possible only via index funds or an ETF. <\/p>\n Tips to choose the right index fund\/how to choose an ETF:<\/p>\n The admin cost of running the index funds is called the expense ratio. This value should be as small as possible, especially for Index funds which are passive investments. <\/p>\n Size of the fund is measured by Assets Under Management (AUM). If the AUM is too small, the fund expenses are split between a smaller number of investors making the fund costlier. This should be higher value.<\/p>\n Experience and prior performance of a fund manager should be taken into account before investing in an index fund to reduce tracking error. <\/p>\n An index fund may not perfectly track its index. The deviation in the returns of the index fund from the returns of the index itself is called tracking error. This should be as low as possible, or at least consistently positive. <\/p>\n “How to select the best index fund”, for your portfolio, <\/em>or “Which <\/em>ETFs to buy” that fit your investment plans are questions we hope this article answers. One should assess the investment goals, timelines along with one\u2019s risk appetite. <\/p>\n The index fund should fit into a larger financial plan<\/a> to get the desired returns at the expected time. It helps to remember that an index fund is meant as a long term passive investment instrument.<\/p>\n<\/p>\n <\/p>\n Maxiom Wealth \u2014 Free Tool<\/p>\n Two funds with similar star ratings can deliver very different outcomes. Use our fund comparison tool to check if you’re in the right scheme for your risk profile and investment horizon.<\/p>\n Try our Portfolio Rebalancing Calculator →<\/a><\/strong><\/p>\n Compare Funds \u2192<\/a> What are Index Funds These are mutual funds that track one of the market indexes like Sensex or Nifty. The fund manager, here, does not get to select the stocks the fund will invest in. The fund portfolio will mirror the index that it tracks as accurately as possible. Sensex is an index derived from… Read More »How To Select The Best Index Fund For Your Portfolio?<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":5129,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[204,348,671,779,819],"class_list":["post-1657","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing-fundamentals-mutual-funds-guide","tag-etfs","tag-index-funds-direct-equity-jama-wealth","tag-share-market-indexes","tag-types-of-index-funds","tag-wealth-manager"],"_links":{"self":[{"href":"https:\/\/maxiomwealth.com\/blog\/wp-json\/wp\/v2\/posts\/1657","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/maxiomwealth.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/maxiomwealth.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/maxiomwealth.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/maxiomwealth.com\/blog\/wp-json\/wp\/v2\/comments?post=1657"}],"version-history":[{"count":4,"href":"https:\/\/maxiomwealth.com\/blog\/wp-json\/wp\/v2\/posts\/1657\/revisions"}],"predecessor-version":[{"id":7507,"href":"https:\/\/maxiomwealth.com\/blog\/wp-json\/wp\/v2\/posts\/1657\/revisions\/7507"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/maxiomwealth.com\/blog\/wp-json\/wp\/v2\/media\/5129"}],"wp:attachment":[{"href":"https:\/\/maxiomwealth.com\/blog\/wp-json\/wp\/v2\/media?parent=1657"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/maxiomwealth.com\/blog\/wp-json\/wp\/v2\/categories?post=1657"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/maxiomwealth.com\/blog\/wp-json\/wp\/v2\/tags?post=1657"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}How are Index Funds Different from ETFs<\/h3>\n
How does an index fund work\u00a0<\/h3>\n
How are Index funds Different from Actively Managed Funds<\/h3>\n
What are the Types of Index Funds<\/h3>\n
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Pros and Cons of Index Funds<\/h3>\n
Pros<\/h3>\n
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Cons<\/h3>\n
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How to choose best index fund in India?<\/h3>\n
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Conclusion<\/h3>\n
Is Your Mutual Fund Working Hard Enough?<\/h3>\n
\n Talk to a Financial Advisor<\/a>\n<\/div>\n","protected":false},"excerpt":{"rendered":"