Home/Blogs/What are Tracker Funds

What are Tracker Funds

07 Aug 2023

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.

 

Start Investing with Free Expert Advice!

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.

 

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 | 10 Points to Remember When Operating your Demat Account | Types Of Demat Account & Trading Account

Checkout more Blogs

You may also like…

Get Exclusive Updates

Be the first to read our new blogs

Intelligent investment insights delivered to your inbox, for Free, daily!

Open Demat Account
I wish to talk in South Indian language
By proceeding you’re agree to our T&C