The Index Investing Revolution: Why Everyone's Talking About It

What has contributed to the shift from actively managed funds to index investing? One reason is the general awareness of mutual funds. Mutual funds have become popular. But suppose someone starts an SIP on a friend's advice. And they come across thousands of mutual funds, then they'll find it nerve-wracking. There's a problem of plenty. With passive funds, you don't have to worry about a fund underperforming. Instead, you know the index will grow over time. And with an index fund, it is easy to get started. Also, when you buy an active fund, it will underperform at times. Instead, for an index fund, you're paying a low expense ratio and get nothing less than the index returns. What are the key advantages of index funds over actively managed funds for new investors? The primary advantage is predictability. Because the problem with actively managed funds is that many times, the fund manager is taking a decision with good intentions, but the results don't come immediately. In the meantime, if the investor is keeping a very keen eye on it, he might get confused. In the case of index funds, you have no such anxiety. This is the definition of the index. You know that every month, as you put your money, you will get as much, no more, no less, besides the cost advantage. How can index funds be incorporated into a well-balanced portfo

This article was originally published on November 29, 2024.