What is an index fund and how does it work?

An index fund is a type of mutual fund or exchangetraded fund (ETF) that tracks the performance of a particular market index. Instead of actively selecting individual stocks or bonds to invest in, the index fund simply buys all the stocks or bonds that make up the index it is tracking. For example, a fund that tracks the S&P 500 index would hold all the 500 stocks in the S&P 500 index in the same proportion as they are in the index.

The primary goal of an index fund is to achieve the same returns as the market it is tracking, rather than trying to beat the market. Because the fund manager is not actively managing the portfolio, index funds typically have lower management fees and expense ratios compared to actively managed funds.

Index funds are a popular investment option for those seeking to diversify their portfolio and achieve broad market exposure. They can provide a simple and lowcost way for investors to gain exposure to a wide range of stocks or bonds.