Investing term

What is Index fund?

A fund that passively holds every stock in a named benchmark (S&P 500, MSCI World, etc.) in proportion.

An index fund holds every stock in a named benchmark — like the S&P 500 — in the same proportions, aiming simply to match the index rather than beat it. Because no expensive manager is picking stocks, fees are minimal. Decades of evidence show this humble approach beats most active funds over the long run, which is why it's the backbone of low-cost investing.

For example

An S&P 500 index fund just owns all 500 companies as they are — you get the market's return minus a fee so small it's almost an afterthought.

Index fund is taught hands-on in Stage 6 — Index Funds, ETFs & Mutual Funds.

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Related terms

Active fundA fund whose manager picks stocks in the hope of beating a benchmark.BenchmarkThe reference index a fund compares itself to — e.g. the S&P 500, MSCI World, or Bloomberg Aggregate.Creation/redemptionThe mechanism that keeps ETF prices close to NAV. Authorized participants swap baskets of underlying stocks for ETF shares (or vice versa).DistributionThe income a fund pays out to its shareholders — dividends from stocks held, plus realized capital gains.
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