About Passive Investing
What are the major differences between Index Funds vs ETFs?
While both Index Funds & ETFs are similar in their function, they tend to differ in operational and execution characteristics. ETFs as their name suggests are traded on their exchange in real time whereas Index funds like typical mutual fund are not. ...
Are all index funds the same?
All index funds are not same because different index funds track different indices. But the philosophy behind investing remains the same. There are different types of indices in India: Benchmark indices like BSE Sensex and NSE Nifty Sectoral indices ...
Can I lose money investing in index funds?
Like in all mutual funds – there is always risk of losing money in the short-run. An index losing 1% daily will lead to the index fund’s value falling by 1%. However, over the long-run index funds have delivered healthy returns.
Why should you invest in index funds?
Low Cost: Since index funds are passively managed, the total expense ratio (TER) is very less as compared to the actively managed ones. While an actively managed fund may charge you anything between 1-2% as TER, an index fund would typically charge ...
Why should you not invest in index funds?
Index funds are built to replicate the index and most active fund managers charge fees to outperform indexes. Therefore, an investor who is purely looking to do better than the index should not invest in index funds. It’s important to point out that ...
Why are index funds popular in other parts of the world?
Index funds are considered as ideal for constructing a core portfolio for long term wealth creation due to their diversification benefits, low cost and low portfolio churn. Globally, Index funds are popular due to the following reasons – Easy - Index ...
Who should invest in index funds?
Index funds are suited for passive investors, i.e. investors who are looking to build long-term wealth but: Don’t have time to manage their portfolio Want to stay away from constant monitoring and juggling their mutual fund portfolio. Are skeptical ...
What is Passive Investing?
Passive investing is an investing strategy that tracks an index. It broadly refers to a strategy where investors, generally having a long-term plan, buy-and-hold stocks and do minimal trading in the market. Investing in Index funds and ETFs are the ...
Why are Index Funds so cheap?
In order to compensate the managers for their time and expertise for selecting stocks and managing the portfolio, a management fee is charged by active fund managers. Frequent buying and selling of stocks also leads to increase in trading cost. Index ...
What is tracking error? Why does it occur?
The extent to which the index fund does not track the index properly is known as tracking error. It is the difference between a fund’s portfolio returns and the benchmark it was designed to track during the investment period. Low tracking error ...
Who manages Index Funds?
Just like actively managed mutual funds, index funds are also managed by fund managers. But fund managers have a little role to play, because constituents of index funds seldom change. Managers just buy and hold all the securities of a particular ...
What is a benchmark?
A benchmark is a standard against which the performance of a stock or mutual fund can be measured. The fund houses select benchmark indices on the basis of market capitalisation and sectoral or thematic strategies of the respective funds. Hence, ...
What is an Index Fund?
An index fund is a type of mutual fund which constructs its portfolio by tracking the composition of a standard market index such as the Nifty 50 or the Sensex. The fund, not only invests in stocks which constitute the benchmark index, but also in ...