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Index fund (definition)

An index fund simply aims to track a market index (S&P 500, S&P/TSX, the global market) rather than beat it. This passive management allows a very low management expense ratio — often under 0.10% — which makes a huge difference over time.

Why it works

Most active managers fail to beat their index after fees over the long run. By tracking the index cheaply, an index fund captures the market's return and leaves you a bigger share. It's the foundation of "Couch Potato" investing.

Index fund vs ETF

An index fund can be a mutual fund (bought from the institution, priced once a day) or an ETF (traded on the exchange throughout the day). Index ETFs are now the most popular for their low cost and flexibility.

See also

Frequently asked questions

Index fund or ETF?

An index ETF is often cheaper and more flexible. An index mutual fund can suit automatic, commission-free purchases.

Is an index fund risk-free?

No. It follows the market — it falls when the market falls. But it avoids the risk of underperforming the index.

Which index should I pick?

Many Canadians choose a global all-in-one fund (Canada + world stocks) for maximum diversification.

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