Index tracker fund are types of fund which are managed through passive management strategy. The basic objective of this strategy is to minimize the operating costs and maximize returns and gains.Index tracer investment is also called indexing, as it is done exactly by purchasing stocks guided by specific stock indexes. This type of strategy strictly follows indexes.
There are following advantages of using index tracker funds.
- It has very low management and operating fees, which helps it to minimize costs and maximize investment returns. So this means that it is very beneficial and advantageous for the long term investors.
- It helps in fixed and focused stock picking, which helps in maximizing returns. is unique investment strategy, which is operated and managed by indexes such as stock market index. So these types of investments strategies have very low transaction costs .
- This type of investment strategy is managed by index, so no special type of investment or stock analyzing expertise is needed by the investors. So this type of investment strategy can be easily managed by normal people.
- It helps in creating and operating risk free and diversified investment strategy. So it can be easily managed by the investors, who want to create a focused and fixed strategy.
- Index tracker funds are very beneficial for the long term investors. These types of investors are most interested in the buy and hold investment strategies, which helps them in achieving diversified returns. This also helps them in constructing diversified and very comprehensive stock portfolios. These types of investment funds have very long term and deep impact(.
Other than these advantages this type of strategy also offers lots of disadvantages.
- In this type of investment strategy , it is very difficult for the managers and the investors to take prompt and quick action in case of issue arising because of fluctuating market As we all know that in this type of investment option investors and managers are not allowed to quick action in case of mishap or any unforeseen event. So investor can face very big loss due to fluctuating share prices in the stock market.
- According to experienced and qualified index experts, it has been discovered numerous times that the index doesn’t always represents correctly about all the share price movements.It mostly happens due to incomplete or correct index construction by the index managers. So sometimes it proves to be risky and costly for the investors to invest in index tracker funds.
- Competition has been increasing day by day in the passive investment sector, as more and more people now are inclined towards index investing rather than active investing. This trend has really increased opportunities in the active investing
- According to the stock market analysts, index tracker shares are not always properly diversified throughout the market, which can prove to be difficult for the investment managers and investors to handle properly and efficiently
- Index tracker fund very easy and efficient to So in this type of strategy it is very easy to track and manage the funds due to efficient system of index.