Definition Index Fund. Description.
An Index Fund is a mutual fund or exchange-traded fund
that mirrors its portfolio to that of a particular index, such as the DJIA,
NASDAQ, Hang Seng Index or the S&P 500. The target is that its performance
matches the performance of a the index.
They do not necessarily have to own all of the securities
making up the index in the same composition; statistical sampling can be used.
Index funds assume that it is impossible to consistently outperform
the market anyway because of Efficient Market Theory, so it is better to keep
the costs low. Index Funds do that, because they are passively managed and
do not require highly educated professional strategists and financial experts,
since they merely mirror an index.
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