What is an index fund and is it advisable to invest in it?

What is an index fund and is it advisable to invest in it?
- Arun

Index funds are the funds that replicate the performance of an index like the Sensex, the Nifty, etc. So, if there is an index fund mounted on the Sensex, its aim will be to give you the same return minus the expenses. Thus, index funds are not supposed to under or outperform the benchmark but just to replicate it.

Investing in an index fund is a general bet on the economy and it's a nice way to invest without much of a headache. In India, the long-term performance of some actively managed funds is better but many investors find choosing such funds a bit intimidating or difficult. Having said that, settling with an index fund is the second-best way of investing in equity.

This article was originally published on May 27, 2020.