For investors who want to take advantage of high returns like stocks without taking much risk, index funds are a very attractive category.
A popular category of mutual funds is index funds and index funds are a very attractive category for investors who want to take advantage of high returns like stocks without taking much risk. Index funds can overcome the problem of such investors. Here the investor can easily invest in shares at a low cost.
An index mutual fund or index fund is a category of mutual funds. This is called a passive fund. These funds invest in the same securities as the index they track. And thus they have passively managed funds. Its calculus is done through the prices of selected shares, which are somehow representative of the market. BSE’s Sensex and NSE Nifty are examples of this.
Index funds are of moderate risk.
Unlike active or actively managed funds, index funds are moderate risk or medium risk investments. Actively managed funds follow a market-performing strategy, from which they take more risk. This also includes high-risk investments in your portfolio.
Low cost fund
Another feature of an index fund is that it has a lower expense ratio. That is, the investment cost is low. Index funds are not traded on the exchange, hence, the liquidity of index funds is low as compared to regular funds. However, they are open-ended schemes, which means that you can always sell your mutual fund units back to mutual funds and redeem your money at any time.