Index Funds

Designed to mirror the performance of the market indices.


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

  • Lower MERs than actively managed funds

    Passively managed index funds have lower management expense ratios (MERs). This may help you minimize investment costs.

  • No commission to buy and sell

    You are not charged any commissions for buying or selling index mutual funds.

  • Broad market exposure

    You can pick funds that track small, mid-sized or large companies. You can also choose funds that focus on certain sectors.


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






Explore other investment types


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