Index Funds are passively managed Mutual Funds that simply copy a popular market index like the Sensex or Nifty. While Index Funds carry relatively lower market risk as compared to actively managed funds, the fund manager has limited ability to manage sharp corrections because the fund must hold all the securities in the index in the same proportion. He/she can’t buy more of an undervalued stock or sell an overvalued stock to take advantage of these market corrections.
Since Index funds track specific market indices, they end up with a portfolio of established securities within a specific market segment be it large caps, small caps, multi caps, banking stocks, corporate bonds, etc. Thus, they limit the investor’s selection universe.
In spite of mimicking a market index, these
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