How to use index funds in your portfolio?

What are index funds? To understand an index fund, you should know what an index is. An index is an aggregation — a collection of stocks in a certain proportion. Most mutual funds are sold on the premise that they will beat the index. It is generally assumed that the return you get from the index, academically or theoretically speaking, is what the market generates. An index fund is a replica of the index as an investment portfolio and is an unmanaged portfolio. Suggested read: What are index funds? What are the pros and cons of investing in index funds? It is simple and predictable. The Nifty has 50 stocks, Junior Nifty consists of the next rung of 50 stocks after Nifty, Sensex has 30 stocks and then there's the mid-cap index, whose constituents you know are fixed as well. Indexes are fixed, and your investment performance matches the index. Which means there is little scope for disappointment. Basically, you don't outperform the index, nor do you trail it. Instead, you settle for the average — and that's what an index fund offers. Also, most index funds have relatively lower costs because a fund manager doesn't actively manage them. Of course, you still get the diversification, conve

This article was originally published on September 20, 2024.