Index Fund
Educational only, not financial advice.
An index fund is a fund — either a mutual fund or an ETF — built to track the performance of a specific market index, such as the S&P 500, rather than trying to beat the market through active stock selection.
Why it matters
- Index funds typically have lower fees than actively managed funds, since there's no research team trying to pick winners.
- Because they hold the whole index, index funds provide broad, instant diversification.
- Long-run data has shown most actively managed funds underperform their benchmark index after fees — see our SPIVA research summary.
Simple example
- An S&P 500 index fund holds (approximately) the 500 companies in the S&P 500, in similar proportions to the index itself.
- A total-market index fund might hold thousands of stocks to represent the entire investable market.
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Reviewed by Greg Parsons. Links checked October 14, 2026. Educational only, not financial advice.