Index Funds

By | October 26, 2013

These can be classified under two names index funds or index tracker and they work the same. They are closely linked with mutual funds and are the cheaper alternative. They still have success in the performance; they are cheaper because there is less work that needs completing once the fund is set up.

Money tree I
Costs

They are less expensive and this is due to the way they are run, you don’t need to have expensive fund managers checking that they are working correctly. They typically run for around 0.2% of the capital that you have invested into the index related fund. This is a lot cheaper than the 1 to 1.5% that a mutual fund will normally take.

It means there is less work for the fund managers to do and this is reflected in the price that you will be charged for. But it is important that even though there has been some great returns from this sector that it is possible to lose your capital and end up with nothing. This is why it is important that you have a well prepared investment plan.

Concept

The concept behind the investment is a way to track the movements of an index and without the purchasing of individual stock. You are not paying people to pick the best stock for a mutual fund; you are investing in the movements of an index. It is a way to have a wide range of investments with a low percentage going to the fund management team. But they relatively had little to do with the management of these funds and this is reflected in the amount of commission that they take.

Amount

It is possible to purchase the funds from different investment managers, and as always it is important that you have fully checked out the company that you intend to use to invest in the index fund of your choice. The amount of initial investment that you will need to put into the index fund will vary depending on your situation and where you choose to invest.

The idea with the index funds is that you get a reasonable rate of return for your investment. It is often called a passive fund because once you have set it up there is little maintenance that is required. It is a great way for growing money and making your money work harder for you.

There are some great ways in which you can invest your money to make it work harder and better for you, but as with any investment there is the possibility that you could lose the capital that you have invested. It is important that you do your homework before you invest money. You need to have checked that the investment is right for you.

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