| Index funds can be simply explained as mutual funds | | | | these funds is that it is easy to understand the |
| that aim to replicate the movements or else copy the | | | | objectives and asset allocations of the funds. One can |
| performance of an index belonging to a specific | | | | easily determine the securities a fund will hold |
| financial market. Different indices copied for index | | | | depending upon the target index. |
| funds include S&P500, Russell 2000, Wilshire 5000, | | | | As per law, buying and selling of trades is taxable. As |
| MCSI-EAFE, Lehman-Brothers Aggregate Bond and | | | | a result, mutual funds need to pay out capital gains and |
| NASDAQ 100. | | | | dividends every year. Hence, these funds do not enjoy |
| Index funds are ideal investment vehicles for those | | | | any type of tax rebate. On the contrary, index funds |
| investors who are more interested in buying and | | | | belong to a special category of mutual funds that |
| holding their investments, thereby allowing them to | | | | enjoy tax benefits. These funds have the advantage |
| grow. These funds are advantageous in way that | | | | of delaying capital funds due to the reason that the |
| they carry very low fees primarily because they lack | | | | funds hold on to a particular stock for an extender |
| any active management. These funds need not invest | | | | period of time, unlike all other types of mutual funds. |
| anything on hiring an expensive fund manager or any | | | | This means that the money saved in the form of |
| research analyst for managing the funds. In most | | | | taxes keeps on generating returns. However, an |
| cases, computers are programmed to handle the job | | | | average turnover on a fund is relatively low when |
| of fund management. Even the expense ratio on index | | | | compared with actively managed funds. |
| funds is as low as 0.18 percent. Another advantage of | | | | |