A mutual fund is a pool of money collected from investors and managed by a fund manager. Mutual funds invest in securities like stocks, bonds, precious metals and other assets.
Broadly, mutual funds can be divided into four main categories which include equity funds, money market funds, bond funds, and target-date funds. Further, equity mutual have sub-categories like largecap funds, midcap funds, large and midcap funds, smallcap funds, multicap funds and index funds, etc. Here we will discuss about index fund in detail.
Index funds are the schemes that mirror the performance of key stock indices. The main objective of an index fund is to match investment return of a MF holder with the market performance of that particular index. There are many index funds offered by asset management companies (AMCs). Some very popular index funds track benchmark indices like Nifty50 or the Sensex.
You can buy index funds through brokers or directly from a fund house.
How do Index Funds work?
As mentioned earlier, an index comprises a group of securities defining a particular market segment. Index funds track a specific index and come under passive fund management. As managed passively by the management, such funds do not need a dedicated team of managers to manage them.
Advantage of investing in index funds
The returns on investment in index funds are more or less equal to the benchmark. Other benefits of investing in such funds are low fees, broad market exposure, tax benefits and easy to manage.