Skip to main content

What is meant by index investing and how it is beneficial ?

By

Index investing is an investment strategy in which traders needs to maintain same combination of stocks in same ratio as they are in the targeted index.It is simple process in which using index funds a passive investment strategy is built. It has become quite popular in recent years.Some popular index of Indian market are nifty, sensex & bank nifty. Index investors decides which market is best to invest and how much capital they should invest and they can use their existing demat account for this. In different exchange of stock market number of companies are listed and it is a tedious process to pick up stocks among all.With index investing traders and investors gets an opportunity to earn profitable returns as here a well diversified portfolio is maintained and their holding gets affected only when a company enter/exit a particular index.


Some advantages of index investing are discussed below :

1) Low cost

The biggest advantage of index investing is that it is the lowest cost investment.Here traders do not need a portfolio manager and also no frequent buying/selling is required. This reduces the brokerage cost to certain extent.Also no other trading costs and taxes incurred here which traders needs to pay with other active investment strategies.


2) Consistency

Market keeps on fluctuating and there are people present in market who are either consumed by fear or greed. Trading decisions based on emotion does not gives favorable results in most of the cases.And therefore best investor always stick to its trading plan until there is a very good supporting reason for not doing so. Index investing helps to stay consistent as here you just need to maintain same combination and ratio of stocks in your portfolio. You do not have to worry that suddenly you will be asked to do something different and rethink about your investment.

3) Less time

To pick up stocks among number of stocks listed on exchange is a very tedious and time consuming process. Traders who are having less time to devote in market can use this strategy as it is easy to track movements of index. Also as we know that to get listed on particular exchange a company has to fulfill different criteria stated by regulatory bodies so traders do not need to worry about quality of stocks.



These are some of the advantages of index investing.Like every investment strategy it also has some disadvantages which are discussed below:

1) Every single stock is not listed on exchange.. There are chances that a stock is performing well but it is not listed and with this strategy investors miss the opportunity to invest in it.

2) Only average returns can be earned with this type of investment strategy.Depending on investment goals one can decide whether to go for this or not.


Pehla trade is among growing discount brokers. Traders and investors can join us to save their huge brokerage cost as we facilitate to trade across any segment by paying flat Rs1/executed order for beginning one month.
Labels:

Comments

Post a Comment

Popular posts from this blog

How to open a Demat account and what benefits are offered by dematerialization?

By
With the introduction of new technologies trading in the stock market has changed a lot. Earlier when BSE was formed in 1875 at that time traders and investors used to stand on floor and shout prices of stocks for buying and selling. The money was exchanged between buyer and seller and a physical copy in the form of certificate was issued to the buyer.The entire process was very time-consuming. In 1996 concept of dematerialization was introduced in share market. Physical copies of shares were replaced by electronic form and were credited and debited from the Demat account of a trader. Following are the benefits offered by dematerialization : 1)Common bank In Demat account along with shares, other financial instruments like bonds can be stored as well. Traders can use the same account to trade in stocks and bonds both. 2)Time and cost To deliver a physical copy of shares cost is involved and also it takes the time to do so. With dematerialization, this cost and time c...
Post a Comment
Read more

What is meant by stock market trend and its types ?

By
Market Trend Stock market is of highly volatile nature and we often notice ups and downs at stocks price charts on daily basis. To some extent market trend is responsible for these movements in stocks prices. Understanding market trend is very much important to perform quality technical analysis. In general term market trend is broad upward or downward movement in a stocks price over a period of time. As we know stock prices can be volatile and does not necessarily follows a straight line by zooming price chart a defined market trend can be identified. Discount brokers offers such necessary details about market trend, price charts and more on their trading platform itself. Three major types of market trends are discussed below : 1) Uptrend When market is following upward trend then at that time both tops and bottoms of a stock chart keeps on increasing. Everyday stock price touches a new high and falls lower than it did on the earlier day. Do not frame a misconception th...
Post a Comment
Read more

How would you differentiate between Traditional brokers and Discount brokers?

By
A brokerage firm is a financial institution that enables traders and investors of stock market to buy and sell financial securities. To execute any contract in stock market two parties are required buyer (long position holder) and seller (short position holder). Basically a broker act as an intermediary between buyer and seller and facilitates them to trade on various financial securities. In return brokerage firms receives compensation in the form of commission/fees once the transaction has been executed. We have two types of brokers : 1)Traditional Brokers 2)Discount Brokers Traditional brokers or full service brokers are the oldest brokers in stock market. They usually undertake more then simply acting as an intermediary to execute the trading process.There services also includes proper researching of stock market to offer necessary recommendations to stock market players as well.Often these firms also offers margins loans in addition to certain client to purchase investment on cre...
Post a Comment
Read more