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What are Tracker Funds

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Published Date: 07 Aug 2023Updated Date: 09 Jan 20256 mins readBy MOFSL
Tracker Funds

What are Tracker Funds

  • When it comes to investing, simplicity and effectiveness often go hand in hand. Tracker funds, based on this principle, are also known as 'index funds.'
  • They are a type of passive investment that aims to replicate the performance of a specific market index.
  • Instead of actively selecting individual stocks, tracker funds invest in a diversified portfolio of securities that mirrors the composition of the target index.

 

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How are Tracker Funds Helpful?

Tracker funds can enhance your investment strategy and maximize your returns in various ways, including:

Simplicity and low costs

  • Simplicity is a key feature of tracker funds.
  • Unlike actively managed funds that require complex investment decisions, tracker funds aim to match the performance of the chosen index.
  • This simplicity makes them an excellent choice for beginners or those who prefer a hands-off approach to investing. 

Diversification and reduced risk

  • Tracker funds offer built-in diversification by investing in a broad range of securities within the target index.
  • This diversification helps reduce risk as your investment is spread across different sectors and companies.
  • Tracker funds can provide a more stable investment experience by avoiding the concentration of investments in a few stocks.

Replicating market performance

  • Tracker mutual funds mirror the market's performance, so investing in them lets you participate in the market's ups and downs.
  • As a part-owner of all the companies in the index, you can experience long-term returns that reflect the overall market performance.

Cost-efficient investment

  • Since tracker funds aim to replicate the index, they typically have lower trading activity compared to actively managed funds.
  • This lower turnover translates into reduced transaction costs and fewer capital gains distributions.
  • Over time, these cost savings can significantly impact your overall investment returns.

Long-term investment

  • Tracker funds are particularly well-suited for long-term investment strategies.
  • By staying invested in the fund over an extended period, you can benefit from the compounding effect of returns.
  • Additionally, since tracker funds are designed to track the market, they are less susceptible to short-term market fluctuations.
  • This long-term perspective allows you to ride out market volatility and achieve steady returns over time.

Conclusion

  • Tracker funds offer a simple, cost-effective, and diversified investment option for those looking to enhance their investment strategy and maximize returns.
  • They aim for long-term investment. With a low-cost investment approach, tracker funds can provide investors with a hassle-free and potentially rewarding investment experience.
  • As with any investment, it's crucial to conduct thorough research, consider your financial goals and risk tolerance, and consult with a financial advisor if needed.

 

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Disclaimer: The stocks, companies, or financial instruments mentioned in this blog are for informational purposes only and should not be considered as investment recommendations. It is advised to consult with your financial advisor before making any investment decisions. Investment in securities markets are subject to market risks, read all the related documents carefully before investing. Investors are strongly encouraged to carefully read the risk disclosure documents prior to participating in market-related investments or trading activities. Due to the volatile nature of financial markets, no guarantees can be made regarding investment returns. Motilal Oswal Financial Services Ltd. does not offer any assured returns on market-linked securities. Please note that past performance of stocks or indices is not indicative of future results.
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