Wednesday, December 29, 2010

Index Fund

An index fund is a passively managed fund which invests in the assets of an index in order to generate returns that match that of the index. For example an S&P 500 index fund will hold shares in the same proportions as their index weighting. For other types of indexes the implementation of the tracking strategy may be relatively more complex, but the basic goal of an index fund is to provide returns as close to the index as possible. Most index funds operate on a significantly lower expense base than more active investment managers. Aside from index mutual funds, unit trusts, and other managed fund vehicles, there are also index ETFs i.e. index funds whose shares are listed on a stock exchange.

Synonyms: Passive fund, Index tracking fund, Index ETF

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