Should Retail Investors Invest in Index-Tracker Funds Rather Than Actively-Managed Funds?

In: Business and Management

Submitted By shiqiwei
Words 1968
Pages 8
Should retail investors invest in index-tracker funds rather than actively-managed funds?

As we all know that there are two main institutional investments which are index fund and actively managed fund. However, it seems to be a hard problem when a retail investor who wants to make an institutional investment, perhaps most of them do not know which one deserve their investment.
Index funds refers to a kind of fund buying all or part of securities according to a standard formed by certain index, which aims to achieve the same level of returns of following the returns , and catch up the market growth at the same time. The index fund is a kind of passive management fund which is just opposite to the actively management fund. There are many characteristics of index fund.
1, Index Investing uses passive operation of tracking the benchmark index, which can make the costs of the fund's operating and transaction into a minimum. Portfolio strategy can be adjusted by According to the change of the index’s Composition, and what’s more, no fees will be paid about the investment research and analysis. So a lower management fee will be charged. On the other hand, the index investors tend to buy long-term holders of stocks, as opposed to active management by actively trading the formation of high turnover and must pay higher transaction costs, the investment of index funds does not take any adjustment to the investment portfolio initiatively, and the low cost of turnover transaction will be paid. These are quite different while compared with the actively managed fund.
2, The index fund has a high utilization of its money. All the investments of index funds are used to track the benchmark index, and it has no cash drag problems. But the traditional open-end fund with actively management will keep 5% -10% of cash in the portfolio at least to prepare for redemption. In…...

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