What is an Index Fund?

Index funds are very simple. Mutual funds are also known as Index Fund. Index funds are an exchange trade fund designed by a preset of rules so to get track of the investments. Free from a person’s account manager bias and provides you a fully automated equity portfolio of high companies. It replicates a specific index.
For example, if we talk about Nifty and Index funds simultaneously. In Nifty, there is 50 stock and in index fund also it will actually replicate it. So whatever 50 stocks are there in Nifty same funds will be invested in an Index fund. So the Beta will be the Same.

What is Beta?

Beta is a change in Nifty v/s the change in your investment. So, if nifty goes up by 1% that means your index fund will also go up by 1%. Lookalike if Nifty goes down by 2% that means your index fund is also going down by 2%. Now, the question is why? The answer is very simple because your mutual fund has replicated the index ( Index here is Nifty).
So for Index funds charges are comparatively less because you don’t have to specifically manage it, don’t have to tale a lot of decisions such as in which stocks to invest when to invest, pros and cons. So, its kind of for beginners, if it is in Nifty it has to be in your Fund. That’s how an Index fund works.
Want to learn more about the difference between the Demat and Trading Account!

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