Index Fund
A mutual fund that simply tracks a market index, such as the Nifty 50, rather than trying to beat it.
An index fund holds the same securities, in the same proportions, as its benchmark index. Because it requires little active decision-making, it is cheap to run and usually has a very low expense ratio.
The trade-off is that an index fund will never beat its benchmark — it aims to match it. Over long periods, this passive approach has been hard for most actively managed funds to beat after fees.
Key points
- Mirrors an index instead of picking stocks.
- Low cost due to minimal active management.
- Aims to match the market, not beat it.
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Related terms
The annual fee a mutual fund charges to manage your money, expressed as a percentage of your investment.
Exchange-Traded Fund (ETF)A fund that holds a basket of securities, usually tracking an index, whose units trade on a stock exchange like a share.
DiversificationSpreading your money across different investments so that a fall in any one of them has a limited effect on your overall portfolio.
Net Asset Value (NAV)The per-unit value of a mutual fund, calculated as the total value of its holdings minus expenses, divided by the number of units outstanding.