Index Funds
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Index funds are a type of mutual funds that rise or fall based on the performance of particular market index. An index is a group of securities that represents a particular segment of the market (stock market, bond market, etc.). Among the most well known organisations that develop market indexes are Standard & Poor’s (maybe better known as S&P) and Dow Jones.
Index funds operate in a manner that allows them to hold virtually all of the assets that it does own in the same proportion as the index that it is attempting to follow. will hold almost all of the securities in the same proportion as its respective index. Index funds can be structured as a mutual fund, an exchange traded fund (ETF), or a Unit Investment Trust.
Index funds are generally seen as being passively managed because the portfolio manager of each index fund is following the index, rather than trading individual securities based on their view of the valuation of the share prices and of the potential risk/reward characteristics of the different securities. In contrast, an actively-managed fund will have a asset manager who will be actively buying and selling shares or securities based on an opinion (but a very well informed opinion) on which securities will accomplish the fund's objectives.
Indexes come in many varieties. Some indexes may include nearly all of the stocks in the U.S. (such as the Wilshire 5000 Index) or other countries (such as the MSCI Brazil Index). Indexes may also be subsets of other indexes for example, Standard & Poor's breaks down the S&P 1500 Composite Index into a number of different indexes. The S&P 500/Citigroup Value Index (one of the most popular indexes) includes the stocks with the largest stocks in the S&P 1500 that are considered value stocks. The S&P SmallCap 600/Citigroup Growth Index includes the smallest stocks in the S&P 1500 that are considered growth stocks.
In recent years, a wider variety of indexes have been developed to provide investors with the opportunity to make money from markets that are more specialised or focused on one particular section of companies. Investors who want to invest in commodities, foreign currencies, or socially-responsible companies can now look to index funds.
Index funds have expense structures that are similar to other mutual funds. As with other mutual funds, index funds have various share classes depending on the fund company (Class A, B, C, etc.) Generally, the total costs of owning an index fund are less than an actively-managed fund. However, those total costs depend largely on the fund company offering the funds and the index which the fund tracks. In other words, you can't safely say that all index funds are cheaper than all actively-managed funds.
Index funds operate in a manner that allows them to hold virtually all of the assets that it does own in the same proportion as the index that it is attempting to follow. will hold almost all of the securities in the same proportion as its respective index. Index funds can be structured as a mutual fund, an exchange traded fund (ETF), or a Unit Investment Trust.
Index funds are generally seen as being passively managed because the portfolio manager of each index fund is following the index, rather than trading individual securities based on their view of the valuation of the share prices and of the potential risk/reward characteristics of the different securities. In contrast, an actively-managed fund will have a asset manager who will be actively buying and selling shares or securities based on an opinion (but a very well informed opinion) on which securities will accomplish the fund's objectives.
Indexes come in many varieties. Some indexes may include nearly all of the stocks in the U.S. (such as the Wilshire 5000 Index) or other countries (such as the MSCI Brazil Index). Indexes may also be subsets of other indexes for example, Standard & Poor's breaks down the S&P 1500 Composite Index into a number of different indexes. The S&P 500/Citigroup Value Index (one of the most popular indexes) includes the stocks with the largest stocks in the S&P 1500 that are considered value stocks. The S&P SmallCap 600/Citigroup Growth Index includes the smallest stocks in the S&P 1500 that are considered growth stocks.
In recent years, a wider variety of indexes have been developed to provide investors with the opportunity to make money from markets that are more specialised or focused on one particular section of companies. Investors who want to invest in commodities, foreign currencies, or socially-responsible companies can now look to index funds.
Index funds have expense structures that are similar to other mutual funds. As with other mutual funds, index funds have various share classes depending on the fund company (Class A, B, C, etc.) Generally, the total costs of owning an index fund are less than an actively-managed fund. However, those total costs depend largely on the fund company offering the funds and the index which the fund tracks. In other words, you can't safely say that all index funds are cheaper than all actively-managed funds.
