Glossary
What Is an Index Fund? Definition and Example
An index fund is a fund designed to match the performance of a market index, such as the S&P 500, by holding the same investments in the same proportions.
What it means
Index funds are passively managed, which usually means lower fees than funds where a manager picks investments. They can be mutual funds or ETFs. Over long periods, most actively managed funds fail to beat a low-cost index fund after fees, according to S&P's SPIVA scorecards.
Example
An S&P 500 index fund holds shares in the same large companies as the index, in similar weights.
Why it matters
Index funds are a simple core holding for many long-term investors, but they still move with the market.
Related terms
- ETF (Exchange-Traded Fund): An ETF, or exchange-traded fund, is a fund that holds a basket of investments, such as shares, and trades on.
- Expense Ratio: An expense ratio is the yearly fee a fund charges, shown as a percentage of the money invested. A 0.10% ratio.
- Portfolio Diversification: Portfolio diversification means spreading your money across different assets, sectors and regions so that one.
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Frequently asked questions
Are index funds good for beginners?
Many beginners use them because they are simple and low-cost. Your choice depends on your goals and risk tolerance.
Do index funds guarantee returns?
No. They can lose value.
What is the difference from active funds?
Active funds try to beat the market and usually charge more.