← Glossary
Index fund
A fund that holds the same companies as an index, in the same proportions, instead of picking.
An index fund does not try to choose winners. It copies an index — for example the S&P 500 — by holding the companies in it in the same proportions, and changes its holdings only when the index changes. Its return is the index's return, less the fund's costs.
Because nobody is paid to research and pick, index funds usually charge less than actively managed funds. An index fund can be an ETF or a mutual fund.