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POSTED BY ON September 19, 2011 10:13 am COMMENTS (2)
Hi,
I just read this in one of the websites:
” A safe and smart option for investors who don’t have any experience about the markets and don’t want to make any effort either, is investing money in index funds”
Can anyone explain how different is this index fund with mutual funds and is it a better option as states above?
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The quote holds good for what it states. But with indian context Mutual Funds have outperformed its underlying index by a mile even in long term(10 years+). In current situation a simple large cap fund with good track record will earn you better than any index can offer
as i understand , the index fund is representing the equity shares of the underlined index for exact proportion (minus a little trailing error), and the indexes themselves represent the most prominent equity shares for the segment/sector/capitalization what they represent , and so index funds have no bias of the fund manager, and so their expense ratio is suppose to be lower than the actively managed funds. you can expect the return from the index fund in line to the underlined index, so for the investor without any experience (but having faith for good for the particular economy and particular segment/sector/capitalization) could go for that underlined index fund without more effort. however it has all general risks of equity investments. and for indian context, it is said that till now, the equity funds managed by good fund managers have rewarded the investor far better than index funds on long run, so a liitle more study through sites valueresearchonline.com , morningstar.co.in can help you to select better funds than index funds