Author Topic: How does buying index funds work?  (Read 1613 times)

astvilla

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How does buying index funds work?
« on: December 15, 2014, 07:27:55 AM »
When you purchase index funds, do you buy at whatever the price is at the end of day or what it is the moment you purchased it? Buying individual stocks happens pretty much real time but index funds are calculated at the end of the day or couple hours after market closes?

When you sell shares of index fund, does it sell at end of day or the moment you sell? It seems harder to buy with market swings with index funds because it isn't as responsive

Also what is redemption fee? do you have to hold index funds for a set time or else pay a penalty or higher fee?

MDM

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Re: How does buying index funds work?
« Reply #1 on: December 15, 2014, 07:59:13 AM »
If you want to buy and sell with intra-day market swings you could use ETFs.  Otherwise the index mutual funds behave as you describe.  Redemption fees apply to some funds but not all.

astvilla

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Re: How does buying index funds work?
« Reply #2 on: December 15, 2014, 08:10:55 AM »
MDM, not sure you answered my question but thank you for response. I'm a little confused to index fund buying and wondering if anyone could clarify the whole process in terms of buying, selling, particularly the time of action it takes place

jda1984

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Re: How does buying index funds work?
« Reply #3 on: December 15, 2014, 08:27:34 AM »
MDM has it right.  Index funds are not real time.  The value is calculated after the closing bell and that value applies to all transactions that day (buying/selling).  He also mentioned ETF.  Exchange traded funds are similar to index funds (mutual funds) but unlike traditional funds they are traded in real time.  Redemption fees vary depending on the fund.

wtjbatman

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Re: How does buying index funds work?
« Reply #4 on: December 15, 2014, 10:35:25 AM »
There is some terminology confusion in this thread. An "index fund" is a fund (mutual fund OR exchange traded fund (ETF)) that tracks a particular index.

Mutual funds are bought and sold at the end of the day after the market has closed. ETFs are bought and sold during the trading day. Mutual funds are therefore a little more hands-off as you can't do any intra-day market timing. Not that you should if you're doing buy-and-hold anyway, but you already knew that :)