Index Funds: How beneficial it is for investing in long-term goals

Index funds are primarily mutual funds that invest in similar stocks within a specific market index. Investing in index funds has been considered one of the smartest way of investment moves you can make since a long time. These funds offer access to thousands of assets in a managed investment, minimising total risk via broad variety.

The main advantage of investing in index funds is that they have low management costs because they match their underlying benchmark and don't need a team of research analysts to help fund managers choose the best stocks, said Mahesh Shukla, CEO & Founder, PayMe.

The amount that must be invested in index funds of different assets is specified since such funds use an automated and regulation-based investment strategy, which eliminates discretion and doubts in making investment decisions.

Additionally, investing in proportion to an index ensures portfolio diversification across all industries and firms, allowing a shareholder to profit from the likely returns on the bigger section of the market using a single index fund, added Mahesh Shukla.

Amit Gupta, MD, SAG Infotech said that unlike active managers, index funds often have lower cost ratios, allowing investors to put much more their cash where it will accomplish the most good for their portfolio. Index funds are managed passively, which means they purchase and sell fewer individual assets than managed efficiently mutual funds.

Index funds' asset allocation does not vary frequently, which makes them simpler to administer than mutual funds with active management, added Amit Gupta.

Siddharth Maurya, Resource Specialist, Expertise Real Estate and Fund Management said to invest in index funds, one must have a long-term outlook that allows them to pursue their long-term financial goals without the hassle of constantly redeeming old funds and clinging to the new.

Index funds are affordable, enable diversification, and tend to generate attractive returns over time. Investors are becoming more interested in index funds as many mutual funds of varying capitalization and sectoral funds have underperformed due to market volatility, said Siddharth Maurya.