What Is an Index Fund?

An index fund is a fund that buys every stock (or bond) in a market index, such as the S&P 500, in the same proportions, so its return matches the index’s minus a small fee. It doesn’t try to pick winners.

Why index funds are popular

Most actively managed funds trail their index over long periods once fees are counted. An index fund accepts the market’s return and keeps costs very low, often under 0.1% a year.

They are also broadly diversified: an S&P 500 fund spreads your money over 500 companies; a total-market fund over thousands.

Index ETFs and index mutual funds

Index funds come in two wrappers. An index ETF trades on an exchange all day at market prices; an index mutual fund is bought from the fund company once a day at its closing value. The holdings and returns of the two can be almost identical.

Funds tracking the same index, such as SPY, VOO and IVV for the S&P 500, differ mainly in fees, size and trading costs.

Put it to use

The S&P 500 and the ETFs that track it →Compare SPY and VOO →

General information, not investment advice.