Index fund

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Index fund

Investment fund designed to match the returns on a stock market index. Mutual fund whose portfolio matches that of a broad-based index such as the S&P 500 and whose performance therefore mirrors the market as represented by that index.

Index Fund

A mutual fund that is not actively-managed and simply tracks a benchmark index. That is, the investment company managing the mutual fund places the liquidity in securities represented in a certain index. Thus, when that index increases in price, so does the mutual fund, and vice versa. An exchange-traded fund is a prime example of an index fund. Many popular tracker funds track the S&P 500 and other S&P indices. An index fund is less commonly called an index fund. See also: Closet index fund, SPDR.

index fund

A mutual fund that keeps a portfolio of securities designed to match the performance of the market as a whole. The market is represented by a market index such as the S&P 500. An index fund has low administrative expenses and appeals to investors who believe it is difficult or impossible for investment managers to beat the market. Also called market fund.

Index fund.

An index fund is designed to mirror the performance of a stock or bond index, such as Standard & Poor's 500 Index (S&P 500) or the Russell 2000 Index.

To achieve that goal, the fund purchases all the securities in the index, or a representative sample of them, and adds or sells investments only when the securities in the index change. Each index fund aims to keep pace with its underlying index, not outperform it.

This strategy can produce strong returns during a bull market, when the index reflects increasing prices. But it may produce disappointing returns during economic downturns, when an actively managed fund might take advantage of investment opportunities if they arise to outperform the index.

Because the typical index fund's portfolio is not actively managed, most index funds have lower-than-average management costs and smaller expense ratios. However, not all index funds tracking the same index provide the same level of performance, in large part because of different fee structures.

References in periodicals archive ?
Although 15 of the 72 funds beat a passively managed fund on a pretax basis, only 5 did so after taxes.
Instead, put your money in passively managed funds.
A number of fund families, including Dimensional Fund Advisors, NationsBank, Charles Schwab and the Vanguard Group, have created passively managed funds that are also tax-managed.
Jim Fox, Chief Executive Officer of FundQuest, says, "This research gives us a powerful tool to construct portfolios that combine the cost effectiveness of passively managed funds in many categories with the potential returns of actively managed funds in categories where active management has consistently beaten the indexes.
The investment advice provided by Academic Wealth will be free of conflicts of any kind and will emphasize broad asset allocation, low transaction costs and the use of index funds, passively managed funds and Exchange Traded Funds.
There is compelling evidence that most investors would be better off using fee based registered investment advisors who believe in low transaction costs, broad asset class diversification and the use of index and passively managed funds.
O'Neal stated: "Individual and institutional investors, including 401(k) plans, would be far better served by investing in passively managed funds than in trying to pick more expensive active managers who purport to be able to beat the markets.
INDEX INVESTING is the recently established unit within BIAM, which is dedicated to the provision of passively managed funds.