Before we compare and jump to a conclusion, let’s first understand what are Index Fund and Mutual Fund.
Index Fund: An index fund (also index tracker) is a kind of mutual fund that represents the whole Index. eg. Nifty 50, BSE 30, Nifty Next 50 and many more.
The index fund is also representing the economy of the country.
Mutual Funds: A mutual fund is a professionally managed investment scheme, usually run by an asset management company that brings together a group of people and invests their money in stocks, bonds and other securities. Mutual funds can be Index wise, sector-wise or market-cap wise. There are three types of Mutual funds…
- Equity Mutual Fund
- Debt Mutual Fund
- Hybrid Mutual Fund
Here we are comprising Index Fund with Mutual Fund so we’ll talk about only Equity Mutual Fund.
Warren Buffett has said that an investor should invest in Index Fund directly because most of the Mutual Funds can’t beat the index fund. This is true but this statement was made for US Stock Market. US Stock Market has already very developed.
But Indian stock market still has too much potential to grow. In India, there are so many mutual funds that can’t beat Index fund but a good Mutual fund can really help you to get a good return.
But if you see it in term of charges, so Index Fund charges are really low, because you directly give your fund to exchange. But Mutual Fund charges are high because they have a fund manager and you’re not investing your money directly.
In long term, even a small per cent like 1% can create a big difference. So it’s not a good idea to pay to Mutual Fund company. But if your Mutual Fund is really great and can make you a good return, you should definitely go for Mutual Fund.
