Should you invest in index funds?

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Index funds are a type of mutual funds which are also known as passive funds. These funds track the index of the market or sector where they are invested.

So, is it a good option to invest in index funds?  To answer all your queries, Money9 Helpline hosted Gurmeet Chadha, co-founder, Complete Circle Consultant to help our callers understand index funds and investing in them.

Here are some queries:

Pramod Raj: In index funds, does the fund manager only buy and hold, or does he book profit as well.

Chadha: A fund manager’s role is to mirror the weightage in the Nifty for index funds. If a stock is moving out from Nifty, the manager will remove it from the funds as well. If a stock is entering Nifty, the manager will move it in the funds. So Nifty also periodically rebalances its weightage. Basis the Nifty rebalancing the fund manager will also rebalance the stocks in the index funds. So, it is not his own call instead it depends on Nifty.

Ashish Darji: By investing in Index funds and with help of technical analysis and F&O data, we can get more than 25% return per annum by 2-3 switched between different index funds. Please review my strategy

Chadha: You are defeating the purpose of passive funds. Passive funds investing is a gradual long-term and regular investment. The returns gained from them are not linear. As we know the index funds mirror the inflation plus economic growth, so investing demands time. The index reflects the economy and organised sector.