Guide
An index fund doesn't try to beat the market; it tries to be the market, at low cost. Here's what that means.
An index fund simply holds the same securities, in the same proportions, as a market index it tracks. It isn't trying to pick winners — it aims to mirror the index's return, minus a small cost.
Because there's no active stock-picking, index funds are 'passive'. They typically charge much lower expense ratios than actively managed funds.
An active fund employs a manager who tries to beat the index through selection and timing. Sometimes they succeed; consistently beating the index after fees over long periods has historically been difficult for many funds.
The passive case is partly about cost: if most active funds struggle to beat the index after their higher fees, a low-cost fund that simply matches the index becomes a compelling default for many investors. The lower fee directly improves your net return.
An index fund still falls when the market falls — it carries full market risk. 'Passive' refers to the strategy, not to safety. If the index drops 30%, so does your index fund (before any SIP averaging effect).
It also won't outperform the market, by design. You're accepting the market's return in exchange for low cost and simplicity.
A SIP into an index fund combines two ideas: passive low-cost exposure plus disciplined, automated, averaged investing. You can model the growth of a regular index-fund SIP in our SIP calculator by using a return assumption grounded in the index's historical rolling returns.
This is educational information, not a recommendation of index funds or any specific scheme. Consult a SEBI-registered adviser for personalised guidance.
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