Setting Sights On Index Funds

With many new investors in the fray now in the wake of the pandemic and the irregular movement of the markets, there are some who have doubts about whether choosing index funds would be the right choice in such a scenario. The following article provides some insights

The corona virus pandemic has shocked the whole world. It is one of those ‘black swan’ events impacting not only the physical lives of people across the globe but also creating financial doldrums. The initial reaction to the pandemic was so severe that it sent the stock markets around the world for a free fall. Within a couple of months, equity indices dropped anywhere between 20-40 per cent. From its all-time high of 42,273.87 as on January 20, 2020, the S & P BSE Sensex broke below the 26,000 levels and registered a low of 25,638.90 in just two months. Nevertheless, the month of April 2020 witnessed good recovery and the S & P BSE Sensex is now very well above its psychological level of 30,000.

However, despite this recovery, the S & P BSE Sensex is still down by around 20 per cent on a year-to-date (YTD) basis. This sequence of a dramatic fall and an even more dramatic recovery in just a matter of months has led many people to re-think about investing in equities. Anecdotal evidence suggests that brokerage firms are witnessing record opening of trading accounts over the past two months. The same is true for the mutual fund industry that has seen a surge in the number of folios. While many of them are still undecided about where to invest, some are wondering whether index funds would be a better choice than actively managed funds. As such, in this article we would try to find out whether it is the right time to invest in index funds and also explain the advantages of doing so in such times.