index fund
Index fund (noun) means an investment fund that holds the same things as a published market index, in the same proportions, so that its value rises and falls roughly in step with that index instead of relying on a manager to choose individual investments. Example: “Her whole retirement pot sits in a single global index fund.”
How to Use Index fund
Learner’s notesIn plain EnglishA fund that copies a whole market instead of trying to pick the best bits of it.
Neutral and standard in both professional and consumer finance writing. Two words in normal use.
The index in this term is a list, not a finger or the back of a book; it names a group of investments used as a yardstick for a market.
Trace the full origin ↓Fill the Gap
Can you complete this real example?
Her whole retirement pot sits in a single global _____.
Etymology
A compound of index, a published measure of a market's overall value, and fund, a pool of money invested on behalf of many people.
Synonyms
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Frequently Asked Questions
What is the difference between an index fund and an actively managed fund?
An index fund simply copies a benchmark and holds whatever is in it, so almost no judgement is involved. An actively managed fund pays people to decide what to buy and sell in an attempt to beat that benchmark. Because active management costs more to run, active funds usually charge higher fees.
What is the difference between an index fund and an ETF?
They answer different questions. Index fund describes the strategy, which is to mirror an index. ETF describes the wrapper, which is a fund whose units trade on a stock exchange all day. A fund can be one, the other, or both at once.
Can an index fund lose value?
Yes. It holds the same investments as its index, so if the index falls the fund falls with it. Tracking an index removes the risk of a manager choosing badly; it does not remove the risk of the market itself declining.