Index Funds
Beginner
What Are Index Funds?
An index fund is a type of investment fund designed to replicate the performance of a specific index of financial markets, such as the S&P 500 or the FTSE 100. These indexes represent a collection of stocks or bonds, and the index fund aims to mirror their performance by holding a similar portfolio of securities.
How Index Funds Work
Index funds typically work by holding a portfolio of securities that closely matches the composition and weightings of the index they aim to track. For example, an S&P 500 index fund will invest in the 500 companies included in the S&P 500 index, with each holding proportionate to its market capitalization within the index. This approach ensures that the fund's performance closely aligns with the index.