Index Fund Definition

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Definition Of Index Fund:

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.Other definition of index fund- Mutual fund that seeks to match the return its investors (unit holders) would get if they owned all the securities included in a stockmarket index such as Standard & Poor's 500 (S&P 500). The performance of such funds, therefore, reflects the performance of the securities market as a whole. See also indexing.Other definition of Index Fund- A type of mutual fund with a portfolio constructed to match or track the components of a market index, such as the Standard & Poor's 500 Index (S&P 500). An index mutual fund is said to provide broad market exposure, low operating expenses and low portfolio turnover."Indexing" is a passive form of fund management that has been successful in outperformingmost actively managed mutual funds. While the most popular index funds track the S&P 500, a number of other indexes, including the Russell 2000 (small companies), the DJ Wilshire 5000 (total stock market), the MSCI EAFE (foreign stocks in Europe, Australasia, Far East) and the Lehman Aggregate Bond Index (total bond market) are widely used for index funds.Investing in an index fund isa form ofpassive investing. The primary advantage to such a strategy is the lower management expense ratio on an index fund. Also, a majority of mutual funds fail to beat broad indexes, such as the S&P 500.

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