What are index mutual funds?

The Mutual Fonds Index are tools for investing in the stock market that seeks to correspond to the investment return of a certain group of shares called the index. Index Mutual funds owns only shares that make up the corresponding index and carry lower annual expenditure than other types of mutual funds. Fund own shares in proportion to the weight of each stock on the index. Different indices usually monitor a specific business segment of the stock market, such as financial institutions or European companies. Some indices follow a large market segment, such as the 500 largest companies or even the market as a whole.

Mutual fund is a collection of shares that the fund owns. The investment house sets up a mutual fund and sells shares in the fund to individual investors. Mutual funds simplify the chore investment in a diversified collection of shares for individual investors. Rather than trying to buy dozens of shares to diversify the investment portfolio, an individualinvestor can invest in a mutual fund that is already diversityforged.

Fund administration style distinguishes index mutual funds from managed mutual funds. The managed mutual fund relies on the fund manager or the selection of shares to decide which shares to own and in what proportion to own. The fund is governed by its original target sector, but the fund manager has a lot of freedom when choosing shares and shares. The fund manager could try to repair the time market and move the funds of the fund to and out of cash.

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Index Fund is actively managed. Instead, because the fund owns only shares that correspond to the index they try to monitor, the mutual fund manager does not have to index, which does not have to decide which stocks owned and in what configuration. The Mutual Fund Index has much lower management costs than the mutual fund managed because Active does not pay the fund manager to manage the fund and the index fund hand over the lower costsEstors who own a fund. Managed mutual funds also buy and sell stocks more often than the mutual index funds, which means that actively managed funds cause more transaction costs than the index funds. For these reasons, the index mutual fund is sometimes called "passive" investment.

In his book Common Sense on Mutual Funds , John Bogle, founder of the Vanguard group, represents an in -depth analysis of the idea of ​​index mutual funds. Investors consider Bogle to be the "father" of index funds and Vanguard has offered its investors their investors index mutual funds. These days, many different investment companies offer at least several index mutual funds. Funds that monitor the S&P 500, an index that represents the 500 largest shares on the US stock market, is common index mutual funds. Indexes sometimes remove and add certain supplies, which means they have to look at the index fund Catching suit,But such changes are rare.