If You Are Curious About [Derivative Products ABC] Index Funds

Dealers are working in the dealing room of Hana Bank in Euljiro, Seoul, on the 4th, as the KOSPI index started at 2,181.64, up 34.64 points (1.61%) from the previous trading day, continuing its strong trend. Photo by Moon Honam munonam@

[Asia Economy Reporter Park Jihwan] Even if you want to invest money in the stock market, there are many times when you don't know which stocks to choose. This is because although you want to invest in stocks, you are afraid of suffering a large loss due to a wrong stock selection.

Such investors might consider investing in index funds. As the term 'Index' suggests, an index fund is a product that invests in an index. The structure is such that profits occur as the stock index rises, and losses occur as it falls. Major indexes announced domestically include the KOSPI Index and KOSPI 200 Index. Since the representative stock market indexes are the investment targets, it can be considered relatively safe.

Generally, it is a suitable investment target for individual investors who find it difficult to devote enough time to stock investment or have difficulty selecting stocks. In terms of investment tendency, it is suitable for conservative investors who do not want to take risks.

The biggest advantage of index funds is that their investment costs are lower than those of general funds. Since they do not actively manage investments compared to general funds, their management fees tend to be low. Even in the case of Exchange-Traded Funds (ETFs), which are representative index funds, since the funds are listed on the stock market and can be traded like stocks, there are no sales fees, so the investment costs are relatively low.

However, just because the investment risk is low does not mean there is no possibility of principal loss. Like general funds, index funds invest in stocks, so there is always a risk of principal loss.

For example, if the proportion of stocks that have risen is low and the proportion of stocks that have sharply fallen is high, the return rate may decrease even if the index being tracked rises. Also, the difficulty in changing constituent stocks is pointed out as a disadvantage of index funds.