Index funds

Relevance: Prelims: Economy

Index funds & its effects on indian economy

Why in news?

• Index funds, as the name suggests, are funds that replicate a certain index. So, if there is a Sensex fund, it will have the same 30 stocks that are there in the Sensex.

• Further, the weightage of each stock in the fund would also mirror their respective weightage in the actual index. Globally, there are many index funds that replicate popular benchmarks like S and P 500 and Dow Jones.

• In the Indian arena, most of the leading mutual fund houses offer index funds based on Sensex or Nifty. Index funds are a form of passive funds since the fund manager does not have to actively do any kind of stock picking. The fund sees a churn in its portfolio only if the actual index sees any inclusion or exclusion.

Benefits of investing in index fund:

• Typically, the benchmark index of any exchange would comprise the largest and most liquid companies publicly listed on that bourse.

• The benchmarks are quite diversified in terms of sector representation as well. So, investing in an index fund allows the investor to have a well-diversified portfolio of the largest companies.

• An investor can own a basket of stocks at a much lower cost compared to owning each stock individually in a benchmark.

Index funds & its effects on indian economy

 

For more such notes, Articles, News & Views Join our Telegram Channel.

https://t.me/triumphias

Click the link below to see the details about the UPSC –Civils courses offered by Triumph IAS.https://triumphias.com/pages-all-courses.php

Leave a Reply

Your email address will not be published. Required fields are marked *