If you would like to trade stocks you could do it directly or with the help of mutual funds. If you trade directly you could do it with the help of trading bots and automation software or with the help of brokers. If you are someone who likes to make the best use of the diverse market out there then you would need something like an index fund to explore all the options. This helps you diversify and expand your portfolio. One huge benefit of index funds is that the market conditions might keep changing but the rules associated with index funds keep them stable.
What is an index fund?
There are stocks and there are indices. If you focus on investing in the indices so as to benefit from the growth pattern of the indices then it is an index fund. These are mutual funds that are designed in a way that makes them work very much like the market indices. The fact that these are passively managed funds is one factor that makes these funds different from the mutual funds.
If you plan to invest in index funds here are a few benefits that you should be aware of-
Do not be worried about the expense ratios as with the mutual funds
Mutual funds are great but index funds are better in terms of the expense ratio as these are only passively managed. The small difference in the cost adds up in the long run and can increase your profits. After all, every investor aims at reducing the overheads.
Do not know about balance sheets? Then index funds are for you
There is no complicated technical analysis to be done with index funds. So even if you do not know how to study about a business or if you do not know to read the balance sheets to make a decision, you can still make profits in index funds.
If you know about the growth pattern of the market you would know about the invested funds
In index funds, it is all about the market indices. So an easy way to choose index funds is to pick a market that is growing. As the market keeps growing there is also an increase in the demand for the index funds in the market further increasing your profits.
All these benefits of index funds also come without brokerage fees and the time to be spent in detailed technical analysis of the various stocks.