Its all about INDEX FUNDS - Smart Ways Of Investments !!

When it comes to the collection of stocks, bonds, and other assets, there is a concept called an index. These are passive ways of investing where investors need to spend less time, attention, and effort on analysis, but index funds still generate higher returns. One of the best examples of an index fund is the NSE Nifty 50 or S&P's 500 Index.

People always prefer their money to be secure and in liquid form; hence, investing in index funds is considered one of the safest mediums of investment as their portfolio consists of blue-chip stocks, or we can say, companies with high net worth. So ultimately, in the worst scenario, like a subprime crisis, investors money will not become zero and will recover once the market takes a positive turn.

Index funds provide more stability compared to mutual funds, as whether it's the NSE Nifty 50 or the S&P 500 Index, these funds have well-established companies with excellent track records, and they are also less affected by market fluctuations. The expense ratio is always on the lower side, as fund managers would not trade securities now and then.

The best part of investing in an index fund is that the investor will get one of the best packages of stocks, as all are high-net-worth and renowned companies. Also, there is no requirement to pay a fee to manage your funds or get consultation services. This helps in getting a good return at a lower cost to investors pockets.

Disclaimer: For a better return, one should always opt for the best-performing index fund, as it maximises the return on investment by reducing the risk.

Key Benefits Of Index Funds

Some of the key drawbacks of investing in index funds include an average return compared to mutual funds available in the market, but still, compared to traditional plans available in the market like LIC, FD, or recurring deposit, index funds provide a decent rate of return.

 

Another major issue is the lack of flexibility in switching between funds. If any index fund's performance is in decline, then index managers have few or no options to limit those losses as these are passively managed compared to actively managed investment options like mutual funds.

Return On Investment Calculation

Based on the above ROI formula, if an investor invested in or bought 10,000 shares of XYZ company at Rs 100 per share, After a year, the same share sold for Rs 125. The investor also earned a dividend of Rs 1000 as shares were held for a year or so. The commission paid to do the buying and selling of the share is Rs 300 (trading commission). Based on the above formula, the ROI for investors will be as follows:

Absolute Return %