Choose the best index fund for passive investment

The equity market has gained new investors in the equity since the last year. For a large-cap fund, it is quite an effort to reach its benchmark. However, for mid and small-cap funds it has been difficult regarding this.

Additionally, people are now more investing in mid-cap funds which may result in its difficulty to reach its benchmark.

Apart from large-cap funds, other alternatives available in the market are index funds and exchange-traded funds.

In the market there exist three exchange-traded funds which have large, mid, and small- caps altogether.

The majority of indices track market capitalization for valuation. It refers to selecting those companies having a higher market capitalization named in the index. As a result, the remaining do not make up to the index.

Consequently, most of the large size companies are under these indices. Most medium and small-sized companies miss out on the chance to get included.

As compared to actively managed funds like mutual funds, index funds carry less risk. However, the volatility risk exists.

Investors who have 5 to 7 years can invest their money in mid and small-cap funds.

The liquidity of exchange-traded funds is quite difficult. Thus, mutual funds come up with index funds that most investors want to include in their portfolios.

The factors affecting the decisions to choose any index fund are risk tolerance, fees, and time horizon. The risk tolerance of the investor, fund-related risk, and matching goals with the fund’s strategy are essential to identify. Investors should consider the time after which the investor needs money before making an investment decision.

Therefore, it is essential for investors to carefully research the available index funds and ETFs.


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