Index Fund

Market indices such as S&P BSE Sensex, NSE Nifty50, etc. are created by adopting scientific methodologies and back-tested techniques. As such, the investors may wish to invest in such indices to have smooth investment experience. However, since such indices are not tradable security in themselves, it is a difficult proposition for the investors to construct a similar investment portfolio, which replicates such an index. Index funds may be suitable to meet such investing needs.

Investors may choose to invest in equity markets through two primary investment strategies: active and passive. Active investing refers to the active selection of stocks in the portfolio depending on company fundamentals and other parameters. In contrast, passive investing refers to tracking a benchmark index and replicating its composition in the portfolio. When a scheme is actively managed, the fund manager decides which stock to invest and in what proportion to invest.

Index funds are a type of funds, which aim to replicate a particular index. The fund manager does not have any individual discretion to make changes in the portfolio changes, and the portfolio can be changed only to align it with the changes in the underlying index.