Mutual Funds
What are Index Funds?
We lead extremely busy lives. Some of us simply don't have the time to play an active role in our investments. If you're looking for a passive investment strategy with low fees, index funds can be a good option. They're designed to track and perform like market indices. Index funds purchase securities that make up a market index. These funds attempt to match the market instead of trying to beat it.
What are market indices?
A market index uses standardized metrics and methodologies to measure the performance of a basket of individual securities. They’re often used as a benchmark for assessing the performance of a given investment. Some of the best-known indexes include the Dow Jones Industrial Average and the S&P 500. Comparing the performance of a given investment to a market index can help you understand how well your investments held within your portfolio are performing and whether changes to your portfolio may be required to earn higher returns.
Key Highlights
Index Funds vs Actively Managed Funds vs ETF
Explore the differences between fund types.
Index Fund (Passively Managed) |
Actively Managed Fund |
Actively Managed Exchange Traded Fund (ETF) |
|
---|---|---|---|
Overview |
Track the performance of market indices to yield market-average returns. Prices are set daily at market close. |
A pool of pre-selected securities that seek to outperform the market. Prices are set daily at market close. |
A collection of securities that trade on a stock exchange. Prices fluctuate throughout the day as trades are made on the open market. Prices fluctuate throughout the day as trades are made on the open market. |
MER |
Lower expense ratio |
Higher expense ratio |
Lower expense ratio |
Management |
Requires a fund manager |
Requires a fund manager |
Requires a fund manager |
Fees |
They may have management fees |
They have both transaction and management fees |
They have both transaction and management fees |
Index Fund FAQs
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