Recently, index funds have gained immense popularity in the investment world. To learn whether such funds represent a safe and secure investment choice, read this article.
Several financial consultants advise and urge investors to increase or add index funds to their investment portfolios. They claim these index funds are cost-effective since they leverage a passive investment method to mimic specific indices.
In this article, you’ll learn what an index fund is, why it is a safe investment choice, and tips to invest in the top index funds in India. So, let’s start.
What Is an Index Fund?
In this section, you’ll find a straightforward and simple answer to the most commonly asked question: “what is index fund?”
Index funds are mutual funds that mainly focus on investing in comparable equities within a particular market index. For several years, investors have considered index funds as their safest and go-to investment option.
Through a well-managed investment, these funds give you access to a range of assets (over thousands) while reducing your overall investment risk.
Why Are Index Funds A Safe Investment Option In India?
Do you know that index funds follow a market index? This is one of the reasons why their returns closely resemble those of the index. Any investor seeking interest in the equity markets prefers to spend their money on these funds.
But they do so only because index funds give them their desired predictable returns with minimal risks involved.
In an actively managed fund, the portfolio’s composition is altered based on the fund manager’s prediction of the underlying securities’ potential performance. This increases the portfolio’s level of risk. The passive management of index funds eliminates such risks.
Nevertheless, the returns wouldn’t be significantly higher than those provided by the index. The best choice for investors looking for greater returns is actively managed equities funds.
Investing In Index Funds? Consider These Things
Before you jump into any decision and invest in index funds, consider the following aspects:
First, consider the duration for which you want to make the investment. If you’re planning to invest for the long term, go with index funds. However, if you don’t have time or the patience to wait through market volatility, go for individual stocks.
It is crucial to know your investment horizon. That’s because it determines how much time you’re willing to devote and dedicate before withdrawing a profit. Let us explain it with an example. Let’s say you have a short-term objective of saving money and buying a house.
In that case, investing in something like an equity fund will make sense for a short time horizon. On the other hand, the equity index is the right choice for long-term investors. Anyone who intends to save money for the future should invest in equity index funds.
It would be an unwise decision to make any investment before considering your risk tolerance. The degree of risk varies from one investment type to another. Some options are safer but involve lower returns. However, the others are riskier with higher returns. As a beginner, choose index funds that are less risky and volatile in nature.
Conclusion: Make The Most Out of Index Funds!
Although index funds won’t yield stellar returns, they will be a much safer investment option in today’s market. You can be stress-free as these funds involve low risk and offer an average rate of return. So, start investing in the top index funds in India and take a step forward to a safer investment journey.
Is investing in index funds in India safer?
Index funds consist of blue-chip stocks in their portfolio. These funds invest your money in the shares of highly-reputed businesses with successful market performance over the past. This is why it’s considered the safest of all equity funds.
Why do people consider index funds as a good investment choice?
Most importantly, index funds assure ownership of a wide range of equities, offer lower risk and enhance diversification at a reasonable cost. That’s why investors, especially beginners, consider these funds a great investment choice.
Why are index funds the best in India?
Without purchasing individual equities, investors can receive exposure to the entire market by investing in an index fund.
Disclaimer– Mutual Fund investments are subject to market risks; read all scheme-related documents carefully.