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Investor Education > Managed Funds > Index Funds

INDEX FUNDS

Investing in an index fund provides investors with a fast and efficient method to access low cost investments in local and offshore markets, commercial property as well as allowing investors to gain exposure to an unfamiliar sector or country. Index funds are designed as an investment vehicle to mirror the asset index by following the overall trend of the market. How much money invested in each underlying company is dependent on the capitalisation of each company in the relevant index.

The aim of index funds is not to outperform the market but rather replicate the performance of the relevant index by investing in all or part of the market. It is based on the theory that investors cannot beat the market because they are the market.

Why invest in an index fund?
There are a number of benefits in investing in index funds. By investing in an entire index for a small minimum investment instead of investing in individual shares, investors can access instant diversification and minimise the effect of a poor performing share on the entire portfolio. Index funds are generally lower cost than more actively managed funds because index funds require less research and investment analysts for stock selection.

How to invest in an index fund
There are hundreds of indices from which investors can choose to invest, they include various geographic regions, sectors and asset classes. Examples of indices include S&P/ASX 200, FTSE 100 and MSCI Far East Index.

Like managed funds in general, index funds are available for minimum investments as low as $1,000 and are available through all major master trusts. Access index funds through 2020 DIRECTINVEST for a 100% rebate on entry fees.

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