Definition of Index Fund

Index funds are mutual funds or unit investment trusts tied to the performance of a particular market index. By investing in some or all companies in the index, managers of index funds seek to match or better the returns of that index in general. Many Americans have money invested in index funds, which carry the same risks and rewards as the market in general.

Indexes Tracked

An index fund can be set up to track one of a variety of market indexes, such as the Standard & Poor's 500, or just a portion of the companies on that index.

Management

Because index funds simply track the performance of a particular market index or segment of it, index fund managers play a more passive role than do managers of other types of funds.

Risks and Rewards

Like all stock-market investing, investing in index funds involves potential risks, as well as rewards, and investors should do careful research before putting their money into an index fund.

Information and Publications

Index funds provide shareholder reports, prospectuses and other publications to inform investors about fund performance and activity.

Fees and Expenses

Investors should consider fund fees and expenses before investing, since these will reduce potential returns.

Resources

• U.S. Securities and Exchange Commission