Is Index Investing for you?

When you invest in a fund which could be an ETF or an Index Mutual Fund, which has been yielding returns similar to the broad market index then it's called Index Investing. The main purpose of these funds is to achieve the same performance good or bad of the specified index. Some Index funds are IDFC Nifty 50 which tracks Nifty 50 or the Vanguard 500 Index Fund which tracks S&P 500.

Index Investing has a good chance of outperforming others over a longer period.

Some benefits of it

• Very low expense ratio and management fees because the fund is not actively managed
• Less likely of falling into an outlier in the broad market, hence reducing overall risk
• Probably the easiest way to achieve diversification

Index funds include multiple sectors, so if you have been buying stocks in different sectors to reduce risk and diversify then you might be better off if you invest in an index fund, as you will save a lot of time and also reduce your trading costs.

Now, it is not all good and it does have some limitations like anything else

• Not best for short terms investment
• Some index funds could be bloated by large corporations like Apple and Amazon

You could see Index Investing as a good passive strategy, so if you have been spending too much time focusing on diversifying and getting normal results, then Index Investing is right for you.