Whether you are a new or a seasoned investor, it is extremely necessary to make sure that you have a well-balanced investment portfolio. A well-maintained mutual fund investment portfolio always leads an investor towards successful financial milestones. To have an organized financial portfolio every investor needs to keep track of his or her mutual funds investment schemes and be determined while deciding on asset location. But again, where to roll your money solely depends on the amount of risk you are willing to take with your investment and what is the kind of achievement you are looking forward to with your financial returns.
One option that is gaining popularity among investors, especially mutual fund investors is that of having index funds. Let us see some more details.
What are some of the advantages of adding index funds be on your investment portfolio?
Mutual funds are always any investor’s first choice as there you have a fund manager bestowed with responsibilities of actively managing your fund.But in the long run, the fee that you end up paying to the fund managers could affect your capital gains because you are paying a lot more than you have calculated.Having said that, index funds are suitable for investors who have either short term or long term capital gain requirements.But when you add index funds to your portfolio, there is no fund manager actively buying or selling stocks on your behalf.
The outcome of your fund’s performance solely depends on the result of the market index.Hence, index fund requires very less fee as compared to what a fund manager demands while handling an active fund.As they mirror the ups and lows of an established index, index funds demand low investment fees and are passively managed.
Index funds are very low-cost, significantly diversified portfolios, which have no human emotional biases to them.In an index fund, you are fully invested while an actively managed fund has some cash holding or can take a cash call.
A lot of financial planners and advisors are convinced that an index funds’ biggest plus point is their extremely low-cost as compared to actively managed funds. Also, you should keep in mind that actively managed equity funds have failed to have an upper hand over passive funds and failed to outperform them most of the times. These days, seasoned financial planners recommend to investors to add at least 25 percent of their investment portfolio with index funds. Slowly but steadily, Indian investment sector is beginning to understand the importance of investing in index funds as they are fetching higher capital gains as compared to actively managed funds.
Always keep in mind that your investment portfolio should always be able to achieve your financial objective and in order to achieve that, you should strategically construct it and make sure that it aligns with all your expectations. Index funds are promising for a seasoned as well as a new investor who is planning to diversify his or her investment portfolio.