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swati Bakhda made post

What is your opinion about investing in index funds? Can I earn good returns on index funds also?

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Dia Deshpande answered.
9 months ago

Index funds are passive funds. The fund manager does not select stocks but just buys the index stocks. So the performance will be exactly like the index. So if index is up 14% in a year then the fund will also be up by around 14% during the year. There is no risk of stock selection and the fund manager making wrong decisions. To that extent, it is safer than an equity fund as it moves with the index. The Sensex has given 16% returns over the last 40 year so from that perspective, index funds should do well.

You will be interest to know that 2019 is likely to become the second year when index funds and passive funds have outperformed the active funds. In 2018, index fund earned 2.3% while active funds earned negative returns. In 2019, active funds made just about 5% returns while passive funds made over 9% returns. In fact, if you want to take a passive approach, you can also look at buying index ETFs, which you can buy in the stock market and the cost structure of ETF is much lower. It is a good idea to have some part of your portfolio exposed to index funds or index ETFs as a passive strategy.