The NASDAQ index fund is a fund that is comprised of all of the stocks that trade on the NASDAQ exchange. Many investors put their money into this particular fund as a way to expose themselves to the movement of the market as a whole. This is considered to be a broad index fund and can provide investors with some unique considerations. Here are the basics of the NASDAQ index fund.

NASDAQ Index Fund

This is a type of investment in which investors pool their money together with the help of a mutual fund company. The mutual fund manager will then take the money and use it to purchase shares of stocks that are traded on the NASDAQ. They will purchase shares of every single company that is listed on the exchange. Typically, they weight the fund towards the bigger companies that are on the top end of the exchange. When a company is removed from the exchange, the index fund will sell those shares. They will then take that money and use it to buy shares of the companies that are added to the exchange. The value of the shares is determined by the collective values of all of the companies that are in the NASDAQ. 

Advantage

The NASDAQ is comprised of a majority of technology and Internet company stocks. By comparison, the New York Stock Exchange has a lot of companies that are of more of a traditional nature that do not necessarily engage in the technology industry. Because of this, when you invest in the NASDAQ, you have the opportunity to profit greatly from the potential growth. These stocks are considered to be growth stocks and many of them have great prospects. 

Disadvantage

When you invest in the NASDAQ index fund, you will also have to deal with the volatility that comes with it. Since these stocks are mainly growth companies, they can be very volatile. In order to profit from this type of investment, you need to have a long time horizon. For example, you might plan on keeping your money in the index fund for least five years in order to overcome fluctuations in market values.

Costs

When you invest in the NASDAQ index fund or any similar fund, you will have to deal with the costs. These funds are managed by a professional money management team. These individuals have a great deal of expertise in financial securities and you have to pay them for their management. This type of fund will have an expense ratio that will cover these fees and any other administrative costs for the fund. 

Buying and Selling

When you buy and sell shares of your index fund, you will have to put in your order with the mutual fund company and it will be processed at the end of the trading day. This limits the liquidity of your shares to a certain degree. The price at which the shares will trade is based on the net asset value of the underlying securities of the fund.

blog comments powered by Disqus
Scottrade