NIFTY. Investments in these funds are in proportion to the market index. These funds give returns as per the market performance. Hence, the volatility of index mutual funds depends on the market. However, many people remain confused about investing in these funds. For them, these are a few benefits to invest in Index Mutual Funds-
1. Less risk involved
Index Mutual Funds are long-term investments that give returns according to the market benchmarks. Market benchmarks like Sensex and NIFTY fluctuate, but these are fruitful in the long run. The volatility of an Index Mutual Fund is minimal in comparison to active funds. Hence, the risk involved in these funds is less than in other mutual funds. Investors who want to invest in stable funds that give good returns must invest in Index Mutual Funds.
2. Suitable for long-term investment
Index Mutual Fund is a very fruitful investment option for long-term investment. If you will look at the trends of Sensex and NIFTY, its long-term investors always gained from the investment. In the long run, these benchmark indexes show increasing trends. Hence, investment should be made in these funds.
3. Less cost involved
The cost involved in Index funds is very less than stock mutual funds. Stock funds are active funds that require continuous monitoring and regular investment decisions from the fund manager. Whereas, Index Mutual Funds are passive funds that do not require much effort from the fund manager’s side. The portfolio of these funds is according to the index. Hence, Index Fund managers need not spend on advisers and analysts. Overall expenses on index funds are also less. Hence, this is a cost-effective investment option.
4. Tax benefit
Any investor wants to invest in the funds that give them maximum tax benefits. Index Mutual Fund is one such investment option. Its turnover ratio is low which means buying and selling of individual securities is very limited in these funds. As a result, capital gains are also limited. When capital gains are limited, the investor automatically receives tax benefits. That is why, investment in Index Mutual Funds should be made.
5. Easy to manage
One of the reasons to invest in Index Mutual Funds is its easy management. The portfolio of these investments is prepared based on market benchmarks. Its asset allocations mostly remain constant. Managers don’t have to worry about the performance of funds in the stock market. Hence, it becomes very easy to manage Index Mutual Funds.
6. Diversified investment
Index Mutual Fund is an option for diversified investment. To understand this, let us take the example of NIFTY. It has 50 constituents. By investing in one NIFTY, your portfolio is diversified to all the 50 companies listed in it. Secondly, even if any company listed in NIFTY faces loss, all of your money will not be lost as the investment is diversified.
Index Mutual Fund is a very fruitful long-term investment. It is safe, low-cost, market-based, and diversified. Hence, you must invest in Index Mutual Funds. For those investors who do not want to invest in risky platforms, Index Funds are best. According to some investing experts, Index Funds are the best investment option for retirement planning.
