Index funds are mutual fund schemes which track the performance of an index. For instance, a NIFTY 50 index fund would replicate the NIFTY 50 index in terms of stocks and weightage (allocation). Simply put, these funds deliver similar returns as the index.
Whether you’re new to investing or have been investing for many years Index Funds are a must have in everyone’s portfolio and. here’s why
1. It mirrors the index
As index funds mirror the index's portfolio, you won't have to do any extensive research about which stocks to invest in.
2. It is a low-cost investment
Index funds are passively managed and have lower management fees than active funds. The expense ratios could be as low as 0.1%. And a low expense ratio indicates higher returns for the investors on their invested capital.
3. No fund manager's bias
Since index funds mirror the index, fund managers don't need to pick stocks or time the market. As such, index fund investment has minimum human errors or bias.
Even Warren Buffet swears by this Index Funds because they are inexpensive and its success is not tied to one single entity.