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Index Funds: what are they and should you invest in them?

Index Funds

There are so many different types of funds to invest in India. What do you choose for your investments? Is there any specific fund that you are seeking to invest in? Well, have you ever heard about index funds?

History of index funds

As Vanguard Group, controlled by John Bogle, launched the foremost Index Mutual Fund in the year 1975, Index funds have taken the investing world by a revolution. Developed markets such as US, Europe and Japan have witnessed an enhanced investor commitment to Index Funds. This trend was further augmented by ETFs, since 1993 that made index investing convenient and even added an additional tax advantage layer. 

What really are Index Funds?

Most of the active Mutual Funds aim to perform better than standard indices. Say, there is a Mutual Fund that benchmarks itself against the Nifty, its goal is to do equal to or better than that of Nifty. This needed the fund manager to invest in research and get the right blend of stocks that can do better than the Nifty.

An Index mutual fund, on the other side, duplicates the Nifty exactly and therefore does not require investing in active fund management. This incremental price can be diminished from the general fund management fee, hence benefiting the investor. In a typical sense Index Mutual Fund management fee is lesser than that of Active Mutual Funds.

Why to go for Index funds

As Index Funds aim to copy the underlying index), the price of managing these Mutual Funds is low, hence saving on the management cost. This code worked well in developed markets. It was because a huge proportion of the markets made up of institutional money and the institutional funds, at an aggregate, were belligerent to perform better than the index because of the higher management cost layer.

Index funds in India

In India, maybe Index funds are yet to get the momentum. The last few years have witnessed a few large Index ETF emerge, mainly driven by some government divestments and EPFO investments – but this is still an initial stage. Certainly if you want to go for index funds then you can learn about How to invest in index funds in India once you explore the options.  You can talk to professionals and take their guidance if you find yourself bewildered about the funds.

Over the next decade, Index funds are surely going to gain prominence in India, but given the track record, the active funds are probable to deliver returns better than that of the Index for some time to come.  You can figure out what you want to do and what type of funds will work for you. The best thing is that you can do research and then find out what is suiting to your needs and expectation and investment graph.

Conclusion

Thus, you can go deeper into the index funds and find out what would be the right time for you to invest in these funds. However, it is always good to know about the options you have in funds.

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