Index Fund Mutual Fund best Fund Investing with Index Fund Fund Exchange Traded Fund Index

To understand Index Funds, let’s start at the basics and look at a Fund. Investing tools that hold multiple companies under one umbrella integrated by a specific investing theme are called “Funds”.

When we say Index Funds we usually refer to Mutual Funds or Exchange-traded Funds. In an Index Fund, stocks are grouped together from companies included within an index. For instance, the S&P 500 or the Dow Jones Industrial Average. In an attempt to mirror the index, the percentage of stock is kept the same as the indexes themselves.

In spite of the fact that both ETFs and Mutual Funds fall under the category of Index Funds, they are not the same. Index Mutual Funds have their Net Asset Value (NAV) calculated everyday, whereas, an Exchange-traded Fund experiences price fluctuations as it is bought and sold throughout the day. Exchange-traded Fund tracks an index, a commodity or a group of assets just like a Mutual Fund, but when it comes to trading on a stock exchange, it trades exactly like a stock.

Bond Index Funds are one of the simplest and cheapest ways to buy bonds. In these days of stock market volatility, Bond Index Funds can claim to provide your investment portfolio with the much needed stability.

For an average individual, Index Funds are an option which is both low-cost and low-maintenance. If you don’t have the time or energy to track individual stocks, you should simply opt for Index Funds. This way, you still get to participate in the stock market but without the daily tension. Your funds will be managed for you while you can go about doing your own thing. Most Index Funds lack active management and therefore, have very low expense ratios.

To get your hands on the best Index Fund, you must be aware of hidden costs like frequent trading. Always do a thorough check on the track record of the said Fund. Don’t fall into the trap of gimmicky sounding funds. It is always better to invest in a broad based Index Fund whose success is independent of the accuracy of your market timing. Remember, the whole point of investing with Index Funds is to avoid hassles like market timing.

Investing with Index funds is a simple and successful concept in the world of investments. In a long term assessment, the S&P 500, an index of 500 of the largest and most profitable companies in the U.S., has risen an average of around 10% annually, with dividends reinvested. The keyword here is “long term”, so you need patience with Index Funds if you really want to maximise your investment. But generally, if you are looking for an investment option with minimum effort and low cost, then Index Funds are definitely the way to go.