What Are Index Funds | Best Index Funds Funds(2020)
Do you want to know what are index funds? If yes, then you read this article completely. Today I will tell you what are index funds and how does it work? Today I will also compare between mutual fund vs index fund.
An index fund is an equity mutual fund that invests in stocks and consists of a number of stock indices, such as the BSE Sensex or NSE Nifty in India. As a result, an expert advice to investors for investing in index funds does not have to be taken.
The returns generated by them are closely related to the funds produced by the underlying index. The fund invests in the same proportion of securities of a particular index. These are aimed at popular indices such as the BSE Sensex or Nifty.
These funds may also be based on a particular sector, such as pharma, IT, FMCG or auto sector indices, etc. These funds are expected to yield returns similar to benchmark indices and their risks are also limited to the risks of those securities. Also associated in which they invest.
When the markets come down, the value of the securities included in it also falls and at the same time index funds also fall.
In your mind, these questions will surely be that which of the best of both mutual funds or index funds is good? You must have read many blogs or watched a lot of videos to get the answer to your question.
But the truth is that many people have told you that mutual funds are better, or many people have said that index funds are good. Instead of getting your answer, this will increase your confusion.
Mutual Fund Vs Index Fund
If you also want to know whether mutual funds are good or index funds, then this article will be very helpful for you.
Because today I will compare between mutual funds Vs index funds so that you can know by yourself which one is better. Today I will tell you the complete truth about mutual funds and index funds.
There has been a lot of discussion about index funds for the last one or two years. A few years ago, when Warren Buffett said that investing in index funds is very good. It is very safe for new investors. Since then, people are paying more attention to index funds.
Friends, we cannot blindly say that index funds are good or bad. It depends on the environment of different countries. If it is good in a country, it is bad in any country.
When Warren Buffett said that index funds are good, he said according to the US environment. Because there is a huge shortage of stock markets in the US or other European countries.
Most adults invest in the stock market. This is the reason why under-value stocks are not available there. Funds managers also find it very difficult to beat stocks.
That is why it is better to invest in index funds and the index will continue to give you as much return as the Sensex in India. So which kind of fund to choose, it depends on their economic climate or it depends on the environment.
Related Article: What Are Blue Chip Stocks | Is It Safe To Invest In Blue Chip Stock
Thus in a country with such a slow-growth economy, therefore the possibility the growth of the company is less. So that’s why it is very difficult to find companies with a high growth rate in the USA and even if found, they are not very profitable. But in India, it is easier to find outperforming company or future multi-bagger company than the USA.
If you invest in index funds, then you will not get exposure like a multi-cap company. Because that index fund will mimic a particular index.
So if you invested in small-cap index funds, you will get a return just as the small-cap company will perform. But if you take multi-cap funds in mutual funds, then you get an allotment of different types and the fund manager decides which asset to invest in. That is why I like mutual funds more because they give exposure to the entire market.
Most mutual funds do not outperform index funds. In this, sometimes the fund managers do such bad stock picking, their returns come less than a normal index fund.
One good thing about index funds is that the expense ratio is much lower than mutual funds. While the expense ratio of a mutual fund is 0.1℅, the expense ratio in a mutual fund is up to 1℅. If you save this extra fee, then you will get an extra return of 1 percent.
People of developed countries choose index funds because they have a lot of difficulty in getting 1% return. But India’s market has been growing at a rate of 15% for the last 30-35 years, so you should try to make sure that we choose a good fund manager by paying an additional 1% fee.
Now you know why people prefer index funds more? America or other European countries have developed and it has not as fast growers India. If we are investing in any mutual funds, then we hope that it will give us more returns than index funds. But there is a lot of business competition in the US and it is very difficult for each businessman to get ahead of each other.
Best index funds to invest in 2020
1. LIC MF Index Fund
2. ICICI Prudential Nifty Index Fund
3. HDFC Index Fund- Nifty 50 Plan
4. SBI Nifty Index Fund
5. UTI Nifty Index Fund
Friends, I hope that you now understand what are index funds and how it works? If you still have this question in your mind, what are index funds, then you can content with us.