Jagran Business: New Investors show Invest in in Index Funds and Mutual Funds

20 Jun, 2022

New Investors should try to invest in Index Funds and Mutual Funds.

What are Index Funds?

An Index Mutual Fund, as the name implies, invests in stocks that mimic a stock market index such as the NSE Nifty, BSE Sensex, and so on. These are passively managed funds, which means that the fund manager invests in the same securities as the underlying index and does not change the portfolio composition. These funds strive to provide returns that are comparable to the index that they track.

How do Index Funds work?

Assume an Index Fund follows the NSE Nifty Index. As a result, this fund's portfolio will contain 50 stocks in similar proportions. Along with bonds, an index can include equity and equity-related instruments. The index fund ensures that it invests in all of the securities tracked by the index.

While an actively managed mutual fund seeks to outperform its underlying benchmark, an index fund seeks to match the returns provided by the underlying index.

What are Mutual Funds

A mutual fund is a type of investment vehicle in which many investors pool their money in order to earn returns on their capital over time. An investment professional known as a fund manager or portfolio manager oversees this collection of funds. It is his/her responsibility to invest the corpus in various securities such as bonds, stocks, gold, and other assets in order to maximise potential returns. The investment gains (or losses) are shared collectively by the investors in proportion to their contribution to the fund.

How do Mutual Funds Work

Mutual funds operate by pooling money from many investors. This money is then used to buy stocks, bonds, and other securities. Mutual funds provide instant diversification (and thus lower risk) to investors because they invest in a collection of companies.

 

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