Answer Book question
A fund that simply buys all the companies in a market index. the Nifty 50, for example. in the same proportions, with no manager picking stocks. It is cheap, transparent and, over long periods, has matched or beaten most actively managed funds. For most households it is the sensible core equity holding.
A fund that simply buys all the companies in a market index. the Nifty 50, for example. in the same proportions, with no manager picking stocks. It is cheap, transparent and, over long periods, has matched or beaten most actively managed funds. For most households it is the sensible core equity holding.
A retired teacher asks which fund to buy. She does not want to research managers or read factsheets. An index fund tracking a broad market index is the answer that requires the least ongoing attention and carries the lowest cost.
Active funds charge more to try to beat the index and most do not, after costs, over a decade. Index funds accept the market return and charge very little. The "tracking error". how closely it follows the index. is the only thing to compare.
Which index Expense ratio (lower is better) Tracking error Direct plan availability
Owning five active large-cap funds that all hold the same top stocks as the index, at five times the cost.
Bank branches seldom recommend index funds because they earn little on them. That is a point in favour of index funds.
Nifty 50 index fund at 0.1–0.2 percent expense vs. an active large-cap at 1.5–2 percent. Over 20 years on ₹10,000/month, that gap can be several lakh.
Index funds fall exactly as much as the market in a crash. They are not a defensive product; they are a cheap, diversified one.
Choose a broad index Buy the direct plan Ignore it for a decade
What is an ETF? Is a mutual fund safer than stocks? Why do I have six mutual funds that all own the same companies?
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