Top 5 Reasons to Invest in Index Funds

If you are new to the world of investment, here’s a golden tip for you! Diversification is the key to an excellent investment portfolio. Thus, if you are beginning your investment journey, try to spread your wealth across different instruments and asset classes to increase your returns and minimise risks. One way to do so is to invest in index funds.

An index fund is a mutual fund designed to replicate/track the portfolio of a market index. Simply put, the fund manager tries to maintain the portfolio in sync with its’ underlying index. They are popular among investors looking to replicate the performance of their underlying index. Read this article to learn why you should invest your money in index funds.

1. Diversification of portfolio

As mentioned above, diversification is a primary element that can help you build an impressive investment portfolio. After all, keeping all your eggs in a single basket is not feasible. So, consider an index fund investment to spread your funds and minimise the risk of investment.

2. Returns similar to the underlying index

Another reason to invest in index funds is that index funds are capable of generating healthy returns over a long investment horizon in sync with the index. However, you must have the patience and discipline to hold on to the funds and only then you will get the maximum benefit.

Additional Read: What are Index Funds? Are Index Funds Returns High?

3. Low cost

Costs in an index fund are much lower than some other types of investment funds. This includes the low management fee collected by the fund managers. The expense ratio is low if you invest in index funds as the fund management costs are comparatively low than other mutual funds.

4. No scope for biased investing

Since index funds are regulation-based and follow an automated investment method, there is less scope for biased investing or human discretion. This is because the fund manager gets a defined mandate of the amount to be invested. Thus, they cannot be biased while making investment decisions.

5. Passive investment

Did you know legendary investor Warren Buffet believes that index fund investment can be a safe haven for your funds during old age? This is because index funds fall under passive investments that don’t require extensive tracking. You can invest small amounts over a long investment horizon and reap the benefits.

Additional Read: Check Out the Documents Required to Declare Mutual Fund ITR Declaration

The bottom line

In a nutshell, index funds may yield attractive returns at a low cost, making them an excellent choice for any investor. Moreover, these funds are volatile and perform well over a long period of time.

Now, if you want to start investing in index funds or other investment instruments, Tata Capital’s Moneyfy app can be your companion. It allows you to set your unique investment goals and compare different funds before investing. Besides, you can perform all these actions from the comfort of your own home. So, what are you waiting for? Download the mobile application on your smartphone and take the first step towards a successful investment journey!