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What are index funds? Why do you need to know this definition? The MoneySense Glossary is your resource for learning and understanding financial terms.
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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