Definition: Index funds are mutual funds that attempt to copy the performance of a stock market index. The most common index fund tries to track the S&P 500 by purchasing all 500 stocks using the same percentages as the index. Other indices that mutual funds try to copy include: Russell 2000, Wilshire 5000, MCSI-EAFE, Lehman-Brothers Aggregate Bond, and NASDAQ 100.
Being passive investments, index funds carry several advantages including lower fees, tax efficiency and performance.
