ETFs and indexing: a simple and powerful investment tool

By now, most of us agree that investing in stocks through mutual funds is both conventional and effective. However, as the number of mutual funds increase, it becomes difficult to choose the right one. And, keeping in mind that studies have shown that it is difficult to outperform the market, you may feel compelled to rethink the whole exercise of choosing the right fund. Is it really worth all the time and effort that goes in researching various schemes? Indeed, you may come to the conclusion that it would be much easier and more lucrative too, if you could simply invest directly in an index. Fortunately for you, it is possible. Mutual funds that enable you to invest in the index are called Index Funds. Such funds invest their portfolios only in stocks that comprise a particular index, in the same proportion in which they are represented in the index. As a result, the performance of such finds mirrors the performance of the index. The mutual fund sector in India has a variety of such funds, so investing in on index is truly within your reach. The mutual fund sector goes a step further to offer you funds that not only mirror on index but whose units can be traded on the stock exchange in much the same way as common stock. These funds are called Exchange Traded Funds or ETFs. This book describes the structure, working and benefits of index funds and ETFs and also the rationale behind investing in such funds. (Source: Back cove r of the book)