In earlier times when there was physical exchange of shares it was difficult to invest as one had to go to exchange or had to request to the company to transfer the share on a particular person’s name. But with the advent of Dematerialization the investment options are flourished. One can buy or sell share in a fraction of time without wasting time and energy. Thus with this system new investment options such as mutual funds have attracted the investors. Even Index Funds are studied on a large scale by investors as it has become low cost fund to invest in.
What Is Index Fund?
Source : openclipart.org
Index Fund is a kind of Mutual Fund which matches with the components of market index. It is a group of shares or securities which resembles a particular market segment. These mutual funds creates Portfolio and studies various undervalued and overvalued securities and shares. These Index Funds can be bought and sold in bundles of specific securities.
Market portfolio represents a risk weighted average return of the entire market assuming the existence of a risk-free asset. Thus Index Fund contains higher level of research and best option can be recognized.
Warren Buffett’s advice on Index Funds
Source : img.theweek.in
Warren Buffett specifically suggests that Index Funds are the best way to earn higher return against low transactions. He said, ” The most sense practically all of the time, is this thing.”
He Says, “The trick is to essentially buy all the big companies through the S&P 500 and to do it consistently but the trick is not to pick the right company.”
Is Investment In Index Fund More Beneficial Than Active Fund?
Source : cdn.dnaindia.com
Active Fund means to invest money through the Fund Managers by providing money and paying commission to them. In Active Funds the Fund managers takes
decision as to which fund to be bought or sold. When one do not have faith on the Fund managers, the best option is Index Fund. Index Fund only invests money in securities which are indexed in various stock indices such as BSE Sensex and NSE Nifty in India.
Source : i2.wp.com
Index funds are very much simple as the stock which are choose by the indices are the base and on such stock only investment is done and in the same proportions. As the fund manager have no need to do any research, the cost or say commission given is very low and maximum part of money is invested making it cost efficient.
The major advantage of Index Fund is that they are Passive Investment. This means one can get maximum return without much buying or selling. Thus we can say that it has low turnover of transaction backed with higher returns.
Best Index funds
Some of the best Index funds to Invest in globally(as suggested by Forbes) are as follows:
Source : kiplinger.com
- SPDR S&P 500
- iShares Core S&P 500
- Vanguard Total Stock Market
- Vanguard S&P 500
- iShares MSCI EAFE
- Vanguard FTSE Developed Markets
- Vanguard FTSE Emerging Market
- Invesco QQQ
- iShares Core MSCI EAFE
- iShares Core US Aggregate Bond
Thus, Index funds are the latent source of investing money in the passive market without spending much on commission to the fund managers and by investing maximum amount of money to yield higher returns. Of course there are some disadvantages but the advantages override the disadvantages and provide best returns.