What are Index funds? and how they works

Generally there are 2 types of funds.

1. Actively managed funds
2. Passively managed funds

Actively managed funds are maintained by experts, research team. They research and invest which industry will perform, which will not perform. Based on that fund manager will make a decision on which funds to invest.

Index funds are coming under Passively managed funds. Passively managed funds do not require any fund manager or research team. These are systematic operations.

A certain Index is kept as a base for investing like Nifty 50, Nifty 100, Sensex, BSE 200. Funds will be bought as the same as the Index and its the replication of Index.

Advantages and disadvantages of Index funds.

Advantages – Low-cost operation. No need a research team or fund manager.
Disadvantages – Compared to Index funds, active funds provided more returns in the past.

In future index funds may perform well than the actively managed funds.

Who can invest in Index funds?

Those who want to invest in the stock market but preferred low risk.
Those who do not want excess profit or excess loss.