Mutual Funds - Index Funds
submitted: Apr 17th 2008 |
by: M.L.Williams |
Total views: 6 |
Word Count: 404 |
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Mutual funds have been around for a long time - since the early 1970's they have increased in popularity with each year - billions and billions of dollars are now invested in mutual funds, making them one the most popular investment vehicles.
A Popular Category of Mutual Fund - Index Funds
There are several different kinds of mutual funds, but a good one to consider is index funds. Index funds are a very common investment because of their usefulness.
Index funds
Index mutual funds are a kind of mutual funds that select a wide variety of stocks and securities with the goal of matching the returns of a well-known stock market index. Some mutual funds are intended to match the Standard and Poors 500, while others are to match the return, which is the up and down of the Dow Jones Industrial Average.
The advantages of index funds advantages
Index funds have several advantages, two of which I'll discuss here. One is that the average expenses of index funds tend to be lower because index funds do not require active management.
If a manager is controlling decisions on buying and selling particular stocks to get a higher return, this is called active management. An actively managed fund has a large turnover of equities resulting in significant costs. A fund that is actively managed requires a manager adept at stock trading. An expert manager, therefore, would garner a salary that is equal to his or her experience and skills.
And, active management requires that a fund manager be hired who is an expert in stock picking and trading. Such a manager, of course, requires a salary commensurate with the manager's ability. Index funds, by contrast, require no active management. The stocks are chosen, often by a computer program, to match the return of the index with the least possible trading and virtually no discretion necessary on the part of the fund's management.
A second advantage to index funds is tied to the first. Since more than half of the universe of managed funds under perform the broad market indexes, when you choose an index fund, you can be assured that your fund will not be in that under performing group.
You can enjoy the benefit of lower fees to be paid to the mutual fund investment company and your investment performing along with the market index it tracks. If you are in the market for a new way to invest, consider index mutual funds.
About the Author
Discover all about indexed mutual funds and other investment and personal finance issues at Mutual Fund Trader, a top source of information covering the mutual fund category.
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