There are many types of funds in the mutual fund market. Everyone has their own strengths. By knowing about these funds, you can choose the right fund according to your needs. Today we are telling you about index funds.
What are index funds?
The meaning of the name of an index fund is quite clear. Such funds invest in the shares of companies included in an index of the stock market. As much as the weight of all companies in the index, their shares are bought in the same proportion in the scheme. This means that the performance of such funds is similar to that of the index they track.
Index funds incur less expensive than actively managed funds. For example, the UTI Nifty Index Fund has an expense ratio of 0.20 percent. At the same time, actively managed funds charge around one percent on direct plans. At the same time, it is about two percent for the regular plan.
Why index funds only?
Index funds have benefited from many things. These include reclassification of mutual funds, the introduction of Total Return Index (TRI) as a benchmark. They have created an atmosphere for index funds. Investors have increased interest in these funds.
Can you get low returns?
Experts believe that in emerging markets like India, returns of actively managed mutual funds can be higher than index funds.
Changes in TER in actively managed funds
SEBI has instructed mutual fund houses to reduce the TER (Total Expense Ratio) of their schemes. This will leave very little difference between actively managed schemes and index funds.
Should I invest in Index funds?
Mutual fund advisors say that investors are turning to index funds. But, its speed will not be fast. Indian markets still have the advantage of choosing good stocks. It is expected to continue even further. So investors can get slightly higher returns in funds with active management.