In investing, a fund designed to mirror the holdings and performance of a market index is an index fund.
Instead of selecting securities primarily through active research, an index fund follows a rules-based benchmark such as the S&P 500 or a broad bond index. The fund may hold all the securities in the index or use a sampling method. Its performance will not exactly match the index because of fees, trading costs, taxes, and tracking differences.
John C. Bogle launched the First Index Investment Trust in 1976, an early retail index mutual fund that later became associated with Vanguard. Index funds can be structured as mutual funds or exchange-traded funds, so “index fund” describes the investment strategy rather than one particular legal format.
An index fund is not guaranteed to make money: it rises and falls with its underlying market. Investors should still consider diversification, risk, fees, taxes, and whether the chosen index matches their goals.