Published : 04 Mar 2023
Investing in index funds is believed to be one of the safest strategies of investment. It provides exposure to thousands of securities in a single fund, hence lowering the overall risk through broad diversification
Index funds usually involve lower expense ratios, and investors get the opportunity to invest more of their money where it will do the best for their portfolio.
Index funds are passively managed, hence, it involves less buying and selling of individual securities than actively-managed mutual funds. Thereby the tax liabilities on such funds reduce significantly, and over the time investors can get more after-tax returns.
Index funds don’t change their asset allocation easily, making them easier to manage than actively managed mutual funds. In simpler words asset allocation remains the same until the investor decides otherwise or until another manager takes over from the current one.
Investing money in a proportion similar to that of an index ensures that the portfolio is diversified across all sectors and stocks. For instance, if you decide to invest in the Nifty index fund, you enjoy larger probable returns and investment exposure to 50 stocks spread across 13 sectors, ranging from pharma to financial services.