Index fund
A fund that buys the whole index, without trying to pick winners.
What is an index fund?
A stock-market index is a list of shares with a rule: the 500 largest American firms, say, or the largest companies on the Bucharest Stock Exchange. An index fund buys exactly what is on the list, and nothing else.
The opposite is an actively managed fund, where a manager picks shares hoping to beat the market. That work costs money, and the cost comes out of the fund's return every year, whether the manager succeeds or not.
S&P Dow Jones Indices' SPIVA Europe scorecard, with data to the end of 2025, finds that over ten years 98% of actively managed global-equity funds denominated in euros returned less than the index they are measured against.
An index fund can be an ETF, traded on the exchange, or a classic open-ended fund bought directly from the manager.
If the market rises 7% in a year, an index fund costing 0.2% returns about 6.8%.
Why are index funds cheap?
Because they pay no analysts to pick shares: they buy what is on the list. The yearly cost is often below 0.3%, against 1–2% for many active funds.
Do active funds beat the index?
Rarely, over the long run. S&P Dow Jones Indices' SPIVA Europe scorecard, with data to the end of 2025, finds that over ten years 98% of actively managed global-equity funds denominated in euros returned less than the index they are measured against.
Related terms
Sources
- S&P Dow Jones Indices, SPIVA Europe Scorecard, Year-End 2025, report 1a · www.spglobal.com
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