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Ch.2 · Advantages and Limitations of Mutual Funds · easy

What is an Index Fund?

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EXPLANATION

An Index Fund passively replicates a market index by holding the same securities in the same proportion as the index. It aims to match (not beat) the index returns. Index funds have lower expense ratios than active funds due to minimal fund manager intervention.

A.A fund that invests only in stocks listed on a specific stock exchange

B.A fund that passively replicates a market index and aims to match its returns [✓ Correct]

C.A fund that uses the Nifty index as a benchmark but actively selects stocks

D.A fund that invests in the top 10 stocks of any index

EXPLANATION

An Index Fund passively replicates a market index by holding the same securities in the same proportion as the index. It aims to match (not beat) the index returns. Index funds have lower expense ratios than active funds due to minimal fund manager intervention.

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