An index fund is a type of fund that follows the market at all times. Index funds can follow an equity index (such as the Oslo Stock Exchange's main index OSEBX), an asset class (such as government bonds), a market segment (such as bonds maturing in less than 5 years), a region or a sector.
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For example, if you have an index fund that follows the Oslo Stock Exchange, the money you invest in the fund will follow the development of the main index.
Index funds are referred to as "passive" investments, in that they try to track the results of an index, as opposed to "active" funds that try to beat the index. Index funds can be traded on reputable exchanges, such as the London Stock Exchange.
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They are also known as "open-ended" investments / funds as opposed to "closed-ended". This means that when investing in the fund, new shares (units) are created. When money is withdrawn, units are redeemed.
"WHILE THE BANKS PAY WELL FOR FUNDS THAT DO NOT BEAT THE INDEX, I DON'T SEE WHY YOU SHOULD NOT SIT IN A CHEAPER FUND THAT FOLLOWS THE INDEX THAT PROVIDES BETTER RETURNS THAN MOST FUNDS".
TOBIAS AARDAL
CUSTOMER RESPONSIBLE
An index fund that follows the development of a market such as the Oslo Stock Exchange (OBX) can cost as little as 0.1% per year, compared with a typical cost of between 1.5 and 2 percent for an actively managed fund.
Index funds, such as OBX, follow the development in the main index and are in contrast to actively managed funds, where brokers try to beat the market through strategic sales and acquisitions.
Buying an index fund that follows, for example, the S & P500, can be compared to buying a small portion, in appropriate quantity, of each of the index's 500 companies - all at a much lower cost than what would be possible for a person, given the commissions that was charged for each trade.
Similarly, a typical commercial property index fund will contain more than 200 individual bonds, so the standard risk is highly diversified.
THE MAIN BENEFITS
TRANSPARENCY
LOW PRICE
DAILY TRADING
THE BENEFITS OF INVESTING IN EXCHANGE-TRADED INDEX FUNDS IS THAT THE COSTS ARE LOW, THE INVESTMENT IS TRANSPARENT AND IT HAS ALSO BEEN PROVIDED TO BE DIFFICULT TO TURN THE MARKET DEVELOPMENT OVER TIME.
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Unlike an investment fund, which trades at a given price point during the day, exchange-traded index funds can be traded as long as the exchange is open. This is a flexible way to invest.
Make your own investment plan with index funds completely non-binding here.
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