Investing Smarter: What I’ve Learned About Index Funds So Far.
As you were already aware from my previous posts that I started taking interest in the equity market last year, I have been active in the stock market and have been actively buying, holding, and selling stocks. I am not only trading in the equity market but I am also learning about it by watching the podcasts of the experts, analysis of the experts shared in the business news outlets and magzines related to these subjects. Though I will like to take the some "educational courses" on this subject, till then I will be trying to learning from the experience of others and not trying to blindly follow them. If I liked the idea, I searches the idea/concept from multiple sources to get a better understanding of the idea.
One of the ideas I came across is the investment in the Index funds. It is not like that I had not heard about the index funds, actually I already got aware of the concepts when INDEX token was launched in the Hive-Engine, but I do not that how I can invest in the index fund in the actual equity market and why I should be investing in the index fund.
So, let explore on all the topics.
What exactly are the Index funds?
The standardized definition of the Index fund is very straightforward taken from the Wikipedia
An index fund (also index tracker) is a mutual fund or exchange-traded fund (ETF) designed to follow certain preset rules so that it can replicate the performance of a specified basket of underlying investments.
So, these funds actually represents or have the portions of the all the stocks/equity/bonds of which they are Index. Some of popular Index funds are top 20,top 50 or top 100 marketcap companies Index fund where the Index fund have allocation (representation) of equity funds that are in top 20, top 50 or top 100 of the stocks of the quity market.
Index fund representation of the equity can also change over period of time as the market condition changes. Suppose at the start of May 2025 Company A is in the list of top 20 companies in the equity market and becomes part of the top 20 Index fund. But in the month of June 2025, Company A is no longer in the top 20 but Company B is now in the top 20, so the index fund needs to drop the equity of Company A and add the equity of Company B to actually represent the top 20. But changes in the Index fund asset allocations are not very frequent, so still, company A can remain in that index fund, but may be in the future, the allocation might be corrected.
How you can buy Index funds.
As the definition already specified that they are either the ETF or the mutual funds, so buying the mutual Index fund or the ETF Index fund will solve the purpose. But note that that there are various type of Index funds available in the market and one can pick the Index funds based on the underlying assets represented by the index funds.
Benefits of Index Funds.
Index fund are not actively managed and in index fund,fund houses just have to add the equity/bonds that represent that index. So it save cost of researching the individual companies and doing active management of the Index fund. There fund houses charges lower fees for index funds. On the other hand buying an index fund will give investor to the exposure to diverse range of stock by just holding the Index fund.
On the top, historical data shows,if the investing period is long enough.
then Index fund outperforms the actively managed funds.
These are the reasons that experts also recommends the Index funds and especially for the newbies.
My 2 cents.
I guess, I am convinced to invest in the index funds, I might be going to further probe that which index funds I will be going to invest in the future, I will like to especially keep them for the long term, with some good dividend-generating stocks.
Disclaimer: Please do fact checks, I am exploring and sharing the details based on my experience and understanding.