Goodwill Investors’ Education Initiative !                 

2nd July 2019

Mutual Funds- INDEX Funds – A good bet for Risk-averse Investors!

Investors are not normally satisfied with the poor returns being offered by banks although they are said to be the safest. Smart Investors argue that the real return of return from bank deposits is almost negligible if not negative when discounted by the prevailing Inflation. Inflation is an indirect tax or diminishing tool of ROI. So the investors are always on the lookout for better returns to enhance their earned wealth. The option is of course the Share markets. But they are diffident as the risk is invisible and high. So the best option perhaps is share market but not direct investment in shares. Herein comes the Mutual Funds which are comparatively safe and gives good ROI over a medium and long term.

Mutual Funds are of various types. One type is Sectoral funds which are actively managed MFs wherein the Fund Manager actively do buying and selling by picking up certain company shares after a research and study over a period of time. But yet again the decision could go wrong if that particular segment does not do well. The recent happenings in Infra Funds and NBFCs would be good examples.

But an Index Fund is a MF that replicates the portfolio of an index. These Index-tracked or Index tied MFs. These funds are affordable and well diversified and generate good return over a period of time. Index MFs are those funds which invest in stock market indices like NSE-Nifty or BSE- 30 Share-Sensex etc., These MFs are unlike active funds and are passively managed without much of intervention by the Fund Managers. When the Index as a whole performs well , the fund gains its NAV. The big advantage herein is that the portfolio of the Fund is well diversified and hence risk is less. Further Index Funds are passively managed and hence the expenses ratio is far less and so low cost of maintenance of the Fund. So Index MFs are ideal investment vehicle for investors who are risk-averse-like Senior Citizens, Housewives, Children investments etc.,  So worry-free, low risk, less expensive –Index Fund should be the preferred investment tool for all.



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