Index mutual funds are passive investments that replicate indices created by independent providers.
The beauty of index mutual funds is in their simplicity. An index mutual fund is a passive investment fund that puts investors’ money into a collection of securities belonging to a particular segment of the market. The securities come from an index, which is most often a basket of stocks or bonds selected on the basis of shared characteristics.
For example, the CSIF (Lux) Equity EMU ESG Blue index mutual fund tracks the MSCI EMU ESG Leaders Index. This index is composed of equities from companies in the eurozone with high environmental, social, and governance (ESG) performance relative to their sector peers.
*Net performance does not take into account sales charges, detailed information on this can be found in the prospectus. Full performance data is available under 'fund details'. Past performance does not predict future returns. Neither simulated nor historical performance is a reliable indicator for current or future performance.
Let’s take a more detailed look at some of the important ideas we’ve introduced here: index mutual funds as a passive investment, and indices.
Index mutual funds are passive investments that replicate indices. But what, exactly, does this mean?
With passive investments, neither the investor nor the fund manager needs to devote resources to researching individual companies, stocks, or bonds. Your money purchases a basket of securities that meet certain criteria identified by the index provider. The index provider, in turn, is usually a third party (such as MSCI) that is responsible for creating the index – selecting the individual securities that go into the basket.
As an individual investor, you can’t invest directly in an index – this is where Credit Suisse Index Solutions comes into the picture. We pool investors’ money to buy the securities identified by the index provider, thereby creating the fund. And since we follow the composition and the weighting of the index as precisely as possible using the very securities that make up the index, we say that our funds physically replicate the index.
Index mutual funds have become enormously popular with investors, accounting for trillions of dollars of assets invested in mutual funds worldwide. Investors both large and small have come to appreciate how index mutual funds can help them participate in attractive market returns to achieve their individual investment goals.
The three primary reasons for this are diversification, affordability, and low tracking error. Investing in hundreds or even thousands of securities within one fund minimizes the risk of a particular stock going bad. Transaction costs are also relatively low compared to other investment types.
Index mutual funds aren’t listed on exchanges, which means you purchase them on the primary market. In other words, your preferred trading platform or broker works directly with the fund management company to handle subscriptions and redemptions of fund units. Units in index mutual funds are traded once a day, based on the net asset value (NAV) calculated at the end of the trading day.
If you are interested in learning more about index mutual funds from Credit Suisse Index Solutions, including how you can get started investing in one of our funds, reach out to us – we’ll be happy to answer your questions and point you in the right direction.