June 07 , 2012
These are equity mutual funds, which track a specific index passively. Passivity means that the fund manager does not apply his own judgment on which shares to buy and sell. Rather, the fund strives to hold the same basket of stocks that constitute the index, and in the same proportion.
Why would anyone invest in a passive fund? Because, in many cases, passive investing delivers better returns that active management! What's more, the expenses charged by an index fund are typically much lower than other equity funds. In fact, there is an argument to say that passive investing alone suffices for an individual, despite a broker and fund lobby trying to claim the contrary.
Equity funds in general are a function of risk profile; index funds are useful if you are short on time and energy to do further research yourself.
Index mutual funds are again great if you are planning for retirement some 10-20 years down the road. Simply start a long term systematic investment in an index fund. As long as India grows and there is no major catastrophe, it should hold you in good stead!