Index Mutual Funds offer the really easiest and definitely most effective way to invest in Mutual Funds.
Index Mutual Funds usually have the lowest fees and you don’t have to worry about what the Mutual Fund managers are actually doing.
If your goal is a long-term growth without having to pay much attention, most probably, the Index Mutual Funds will offer the best solutions.
How Do they Operate?
Officially, Index Mutual Funds do have fund managers, but they don’t do a really big job; they simply buy all the stocks or bonds in a chosen Index with the goal of matching that Index’s performance.
What Is an Index?
It’s a grouping of stocks chosen to represent a certain market segment.
The S&P 500 Index, for example, is comprised of 500 large stocks.
The Nasdaq Composite Index is heavy on technology companies.
By purchasing stocks of either Index, an Index Mutual Fund tries to equal the returns of that particular segment.
A really good Fund manager should always be able to beat the Index.
But Index Mutual Funds also have another advantage:
Low Expenses and Tax Efficiency
Since the Fund manager doesn’t have to look actively for stocks, these Mutual Funds are relatively cheap to run.