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

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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.
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