InvestorQ : What exactly is an index fund and how does it differ from an ETF?
Swati Naik made post

What exactly is an index fund and how does it differ from an ETF?

Answer
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Bhavika Nehru answered.
1 year ago


An Index Fund is a mutual fund that tries to mirror a market index, like Nifty or Jr. Nifty, as closely as possible by investing in all the stocks that comprise that index in proportions equal to the weightage of those stocks in the index. These are passively managed funds wherein the fund manager invests the funds in the stocks comprising the index in similar weight. Index funds, while reducing the risk associated with the market, offer many benefits to the investors.

Firstly, the investor is indirectly able to invest in a portfolio of blue chip stocks that constitute the index. Next, they offer diversification across a multiplicity of sectors since index stocks are generally a basket of 20-25 sectors. Added to these is the relatively low cost of management. Index funds are considered appropriate for conservative long term investors looking at moderate risk, moderate return arising out of a well-diversified portfolio.