Financial Terms / I - J / Index fund

Index fund

An index fund is a mutual fund or ETF that tries to replicate a benchmark index's performance. Investors cannot directly invest in a benchmark index and hence invest in index funds or ETFs that aim to replicate the performance of the underlying index.

For example, buying all the companies in the S&P 500 according to their proper weights is extremely difficult, requires higher capital, and is time-consuming. Investing in a fund can help remove all these hurdles by pooling money together and purchasing the relevant securities in the proper weights.