Definition
Index funds aim to replicate the performance of a market index by holding the same securities in the same proportions. They offer low costs, broad diversification, and tax efficiency. Pioneered by Vanguard's S&P 500 fund, index investing now dominates with trillions in assets tracking various equity, bond, and commodity indices.
Example
A total stock market index fund holds over 3,500 stocks, providing complete U.S. equity exposure with 0.03% expense ratio.
FAQ
What is Index Fund?
A fund designed to track the performance of a specific market index.
Why is Index Fund important?
Index Fund helps investors evaluate fund types and make more informed decisions.
Related Terms
Passive Investing
Investment strategy that tracks a market index rather than trying to beat it.
Expense Ratio
The annual fee charged by a fund expressed as a percentage of assets.
Benchmark
A standard against which investment performance is measured.
Tracking Error
The standard deviation of differences between portfolio and benchmark returns.