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Index funds allow Canadians to invest in hundreds of assets at once. Learn how index funds work at the MoneySense Glossary.
Index funds are mutual funds or exchange-traded funds (ETFs) designed to closely track, or mimic, the performance and characteristics of a specific index. An index isn’t an investment—instead it is measurement of the performance of a group of securities or assets. The S&P 500, for example, is a stock market index that includes about 500 large public companies in the United States. An index fund tracking the S&P 500 holds shares in all of its listed companies, or a representative sample. The composition of index funds doesn’t change very often, and these funds are passively managed, both of which help to keep fees low.
Example: “Because they contain hundreds or thousands of different securities, index funds can offer broad diversification.”
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