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Monday, July 12, 2010

Investing in Index Fund

Diversification is one of the most important goals that any investor could seek. It is the means by which you spread your money around the market in order to have a sense of security, and to take some of the risk out of investing. There are a number of ways to do this, but the best one is to invest in an index fund.

This kind of fund will have you spreading your money around an entire index of stocks such as the Nifty 50, the Mid Cap Index, or the Sensex. These are just three of the possibilities.

Whenever you put your money into a whole index, you are going to own a tiny piece of all of the stocks within the index. This means that if something horrible happens to one of those companies, then you may still make money on the day. You will not have all of your eggs in that one basket, so you will not see all of your money melt away. Using this kind of fund is better than trying to pick a mutual fund to invest in, because mutual funds specialize in particular types of stocks. It is possible that this type of stocks might get hit all at once. For example, the technology stocks might take a collective drop all at once. This would mean that if you are invested in a technology heavy mutual fund, then you would lose considerable amounts of money.

Instead of investing in a mutual fund, then you should invest in an entire index. By doing this, you will benefit with the general growth of the overall market. The overall market has always gone up over long periods of time, so you are likely to make money if you leave it invested for the long term.

Invest in the indexes if you want the most security possible for your money in stock market.