FXTM information and reviews
OctaFX information and reviews
XM information and reviews
FXCC information and reviews
HFM information and reviews
FxPro information and reviews

What is an Index Fund? A Definitive Guide

When faced with volatility in the financial markets, your first defence against the inevitable is having a well-balanced and diversified portfolio. Diversification of your portfolio can be done in many ways, and one way is to use index funds which offer instant diversification through owning a wide swath of companies in one instrument. Index funds can give you low-cost access to diversified investment. In this article, we explore what index funds are, how they work and some examples you may consider.  

What is an index fund?

An index fund is a type of mutual fund or exchange-traded fund (ETF) that keeps track of a financial market index. A market index, in this context, tracks the performance of a basket of assets representing one sector of the stock market or an economy. While you cannot invest in a market index directly, you can use an index fund to enjoy indirect exposure to the basket of products. 

Some common examples of index funds include:

How Index Funds Work

By “indexing”, managers create a passive way of managing funds. A fund manager develops a portfolio that contains the securities found in a certain index, rather than actively selecting stocks. The manager now no longer has to decide which assets to invest in or plan when to purchase and sell them. The theory behind Index funds is that, by closely matching the profile of the overall stock market or that specific index, the fund will be able to match its performance. 

For every financial market that exists, there can be an index for it and a matching index fund. For instance, many popular indexes in the U.S. track the S&P 500. 

Pros and cons of Index Funds 

If you’re thinking about trading index funds, here are some advantages and disadvantages of index funds for you to consider: 

Advantages of index funds 

Disadvantages of index funds 

How to buy index funds? 

To buy an index fund, you’ll first need to find an index fund you’re keen to buy. Much like purchasing an ETF, you can buy index funds directly from a mutual fund company (such as Fidelity, BlackRock, Franklin Templeton and more), or via a brokerage.

Top 5 Index Funds

With so many index funds around, how do you find one that fits your portfolio? To help with your research, here are some of the popular index funds you can check out today. 


Share: Tweet this or Share on Facebook


Commodity Trading and its Role in Energy Transition
Commodity Trading and its Role in Energy Transition

The global energy landscape is rapidly transforming, driven by the need for sustainable and cleaner energy sources. The challenges of this energy transition are vast and complex...

New York Stock Exchange (NYSE): Defined & Explained
New York Stock Exchange (NYSE): Defined & Explained

The New York Stock Exchange (NYSE) appeared 231 years ago, immediately changed the US market, and became the largest marketplace for buying and selling assets in the world...

Exchange Traded Funds (ETF) - Meaning, Types, Benefits
Exchange Traded Funds (ETF) - Meaning, Types, Benefits

ETF funds may become a good alternative to stocks for those who have just turned their attention to earning on the stock market. We have decided to find out what ETFs are worth choosing...

Copy trading: tap into the knowledge of top-performing traders and earn money
Copy trading: tap into the knowledge of top-performing traders and earn money

To be a successful Forex trader, you need to have extensive experience and knowledge of financial markets. But what if you are a novice trader who is just getting started?

Why trade indices?
Why trade indices?

Indices trading is the trading of Contracts for Difference (CFDs) on a stock market index. This is what we’ll be examining in this article. If you ask why trade indices let’s find it out...

Why trade futures?
Why trade futures?

In this article, we’ll be taking a deep dive into the future. We’ll touch on the types of assets that can be traded using futures, and the advantages and general why trade futures from the global traders...

Editors' Picks

FXCM information and reviews
MultiBank Group information and reviews
MultiBank Group
RoboForex information and reviews
Libertex information and reviews
Vantage information and reviews
FP Markets information and reviews
FP Markets

© 2006-2023 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.