24. Why would an investor buy an Index Fund instead of an Actively Managed Fund?

Question

24. Why would an investor buy an Index Fund instead of an Actively Managed Fund? (2 points) The Index Fund offers the benefits of mutual fund investing without the cost of paying for investment manager services. The Index Fund offers the benefit of out-performing a market benchmark on a consistent basis. The Index Fund can include investments in certain sectors of the economy in which an Actively Managed Fund is prohibited from investing by federal regulation. The Index Fund can be sold in the market at its Net Asset Value whenever the investor decides to exit the investment. a. b. c. d

Explanation / Answer

The correct answer is (B)

An investor would prefer an Index Fund over an Actively Managed Fund because the Index Fund offers the benifit of out-performing a market benchmark on a consistent basis. However Actively Managed Funds lack this consistency factor as they may sore well sometimes but are also volatile and may go down also, so it is more of luck than planning.

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