Index fund

An index fund is a passively-managed fund with its AUM invested in a benchmark index such as the Nifty50 and the Sensex, in order to replicate the performance of the benchmark index.

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The advantages of investing in index funds include:-

  • Diversification, as the AUM is invested in all the constituents of the benchmark index.
  • A lower expense ratio, as it is a passively-managed fund. The lack of active buying and selling and selecting of securities reduces the expense ratio.

The disadvantages of investing in index funds include:-

  • Vulnerability to market fluctuations, as index funds suffer from market swings and crashes just like the benchmark index