How finance folk use it
An index fund is a type of managed fund that uses a certain financial market index as the basis for its portfolio and performance. In the Philippines, this index is typically the PSEi.
Because the fund manager copies an index, such funds are considered to follow a passive investment strategy. You can find several Unit Investment Trust Funds (UITFs) and mutual funds that are index funds.
Is it good or bad?
Index funds are a simple way for investors to be part-owners of large and well-performing companies for less than it would cost to individually buy shares of each company (taking the board lot into account as well).
One thing to remember is that, as the composition of the index fund mirrors that of the index, its performance will probably do the same. That’s good when the index is up, but there’s always a chance that the index will go down.
What it means for you
If you’d like to be a part-owner of some of the country’s top companies without spending a lot, you can consider investing in an index fund. Keep in mind that, like all other types of investment, returns from index funds are never guaranteed.
