What is an index fund?

Index funds follow a passive investment strategy. Index funds seek to match the risk and return of the market based on the theory that in the long term, the market will outperform any single investment. "Indexing" is a form of passive fund management.

What are the benefits of index mutual funds and ETFs?

Enjoy the benefits of broad diversification, tax efficiency, and low costs with index mutual funds and ETFs. What is an index fund? An index mutual fund or ETF (exchange-traded fund) tracks the performance of a specific market benchmark —or "index," like the popular S&P 500 Index—as closely as possible.

What types of indexes are tracked by index funds?

Examples of the kinds of indexes tracked by index funds include the Standard & Poor’s 500 Index, better known as the S&P 500, or the Dow Jones Industrial Average (DJIA). Index funds have grown in popularity in recent years, as a growing number of investors have adopted passive investing strategies.

What happens when you buy shares in an index fund?

Like all mutual funds, when you buy shares in an index fund you’re pooling your money with other investors. With an index fund, the pool of money is used to purchase a portfolio of assets that duplicate the performance of a target index. Dividends, interest and capital gains are paid out to investors regularly.