What is Index Fund
An Index Fund is one of the mutual funds or exchange-traded funds (ETFs) that are designed to follow preset rules just to make sure that the fund can easily track the components of investments or of a market index.
Index funds also help in balancing the risk in the portfolio of an investor, as market swings turn out to be less volatile across as index as compared with individual stocks.
- They pool money from different investors to buy bonds, securities or individual stocks to make up a particular market-index.
- They are one of the good ways to minimize risk, the reason being they track a market index, which somehow rises in value over the certain time-period.
- Index funds are known as a passive investment with low fees as compared by those ‘mutual funds’ that are managed on a daily basis by brokers. They also show better returns.