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Benefits of index funds while investing in S and P 500 stocks

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08 Feb 2024

Introduction:

The S and P 500 is one of the famous stock market indices that tracks 500 leading companies as per market cap in the United States of America (USA). A benchmark index tracking US market performance, investing in companies listed in this index can potentially help you in wealth creation. The question, however, is how to do it. Let’s find out.

What is S&P 500?

S&P 500 full form is The Standard & Poor’s 500. One of the widely followed global stock market indices, companies in the S&P 500 are selected by the Index Committee at Standard & Poor’s. The companies represent diverse sectors, including technology, finance, healthcare, etc. Note that market enthusiasts and economists also use the S&P 500 to find out about the broader economy.

Seamlessly investing in S&P 500 stocks through index funds

An excellent way to invest in S&P 500 stocks is through index funds. Index funds are mutual funds tracking an index- such as the S&P 500. An S&P 500 index fund tracks this all-important index and holds securities in the same proportion and weightage as in the index. The S&P 500 index fund aims to replicate the performance of the index.

Advantages of investing in S&P 500 stocks via an S&P 500 index fund

Investing in S&P 500 stocks through an S&P index fund brings several advantages to the table. Some of them are as follows:

  • Diversification

One of the primary advantages of investing in S&P 500 stocks through index funds is the built-in diversification. The S&P 500 comprises 500 publicly traded companies across various sectors. This gives you a well-rounded and diversified portfolio. This diversification helps spread risk, reducing the impact of poor performance from individual stocks. Optimum diversification ensures that non-performance of one stock or company is made up for by the other.

  • Low cost

S&P 500 index funds are known for their low expense ratios. Since they passively track the index and do not require active management, the associated costs are typically lower compared to actively managed funds. Lower fees mean more of your investment returns stay in your pocket. This contributes to improved overall gains over time. In the long run, it can make a significant difference to the end corpus.

  • Ease of investing

S&P 500 index funds offer a simple and accessible way to enter the US stock market and gain from it. You do not need to worry about individual stock selection or market timing. The funds automatically adjust their holdings to match the components of the S&P 500, making it an uncomplicated and hassle-free investment option. 

  • Liquidity

When it comes to investing, liquidity is of utmost importance. It ensures that money is available to you when you need it. The S&P 500 is composed of highly liquid stocks. This means they can be easily bought or sold in the market. This liquidity is advantageous for you as it easily lets you enter or exit your positions. 

  • Participate in the growth story of the US markets

It’s a well-known fact that the US is one of the world’s most developed economies. It’s the home to several multinational giants, and investing in stocks of such companies can potentially help you grow your wealth. By putting your money in an S&P 500 index fund, you can participate in the growth story of the US markets and boost your wealth in the long run. 

Note that historically, the S&P 500 index has delivered robust performance. Thus, investing in it can help you make significant gains in the long run.

Wrapping it up

It will not be an understatement to say that S&P 500 index funds serve as a gateway to participate in the growth story of the US and the world’s leading companies. By aligning your investment strategy with the diverse and dynamic components of the S&P 500, you position yourself to benefit from innovation, resilience, and long-term prosperity - the hallmarks of the US economy.

Motilal Oswal S&P 500 Index Fund allows you to seamlessly invest in the stocks that comprise the S&P 500 index. Click here to know more about this fund and the benefits on offer.

 

Related Articles: How to Open a Demat Account Without a Broker | Factors to Keep in Mind While Opening a Demat account | Factors to Consider When Opening a Demat Account 

 

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