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Index Fund
A fund that simply copies an index such as the NIFTY 50 instead of picking stocks.
Detailed explanation
The manager buys every constituent in the same weight as the index, so there is no stock selection and no view on the market. The goal is to match the index minus a small cost, measured as tracking error. Fees are low because no research team is required.
Example
If the NIFTY 50 returns 14% in a year, a NIFTY 50 index fund charging 0.2% should deliver close to 13.8%.
Why it matters
A majority of active large-cap funds fail to beat their benchmark over long periods, which makes low-cost indexing a serious default option to understand.
Key points
- Returns track the index, both up and down.
- Tracking error measures how closely it follows.
- No manager risk, but also no chance of beating the market.
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Educational content only. Definitions and examples are illustrative and are not investment, tax or legal advice.