Index funds – What are the Benefits?
Index funds are types of investments similar to mutual funds that are in a customized and structured portfolio to closely track the performance in the bigger stock markets. Index funds are also known as ETF (exchange traded funds). Index funds are remotely managed by portfolio managers who track the performance in the markets. There are numerous ways to invest in stocks and choosing from the huge list is challenging and risky. A lot of research is required to eventually make the decision of investing in stock markets. An Index fund is a tried and tested option to invest in stocks and obviously easier than any other. These investments and funds are easier and cheaper to manage.
What are the types of funds for investing?
There are majorly two types of funds-
- Actively managed:
In this type of funds, the investment is managed actively and requires more finances for tracking the performance of the stocks. Actively managed funds generally struggle to reach their target set for the benchmarks. These types of funds need a research team for management of funds which results in higher maintenance costs for the investor.
- Index Funds:
This type of fund requires minimal management as they are tracked passively. They do not require a research team for active tracking of stocks. These funds have a guaranteed return as they target average performance and in several cases, they even outperform the actively managed funds by 80%. Index funds cost cheaper than a percent in comparison to the other funds and the fees charged are minimal.
How can you invest in Index Funds?
One of the easiest ways is to save your earnings and invest them further for maximum gains and results. Saving money in Index funds or ETFs is one of the safest options to invest. There are some ways in which you can invest in mutual funds which are:
- Decision making: the customer needs to decide the company or the manager to invest their money. The customer also needs to check on the transaction costs, maintenance costs, convenience, commissions, etc. to finally decide the way to go ahead with the Index funds.
- Making a selection of the stocks: The investor can select a huge number of stocks for exchange trade funds where they can make a selection based on the company performance, assets, future of the company in the market, etc.
- Check the costs- Index funds are easier and cheaper to maintain or manage. The investor needs to consider the costs that are required during the term of the mutual fund e.g. bank balance, tax ratio, etc.
What are the benefits of Index Funds?
- Tax saving: the index funds definitely help in saving tax as they have a slow and low turnover.
- Guaranteed returns: Index funds guarantee average returns after the passive management of stocks.
- Low Cost: Index funds track the average outcomes which is what makes them easy with a small amount of finance or money.
- Above 80%: Index funds are targeted to be average and are managed passively in the portfolio. These are a sure shot success and they perform even more than the ones that are actively managed stocks.
- Minimal Maintenance: Index funds require low maintenance as they are easy to manage and do not require too much of work.
- High long term returns: Exchange Trade Funds or Index Funds have a higher and long term return strategy in comparison to the actively managed other types of funds.
- Effective use of savings: many researchers and market specialists have recommended Index funds as the most effective way to utilize hard earned money for savings and investments.
- Submissive management: the Index funds portfolio is managed in a low operating method which requires minimal tracking and work.
- Huge Variation: Investors can target a large number of stocks in one Index fund and can gain maximum from all the segments. They can select in hundreds or thousands of stocks in one single mutual fund or ETF.
- Liquidity benefits: ETFs are beneficial because of their liquidity where the investor can buy or sell his funds easily as they belong to large and well-known companies. It is also easier to trade as the Index funds are available in bulk buy or sell in the market.
What are the best Index Funds in the US?
The various Top Index funds are:
- Fidelity Spartan
- T.Rowe Price Equity Index