Mutual Funds

What are index mutual funds?

Index mutual funds are so-called "passively managed funds." The term is to contrast it to mutual funds which are "actively managed."

In an actively managed fund, the fund manager researches and selects each individual stock or bond that the fund invests in. The objective is to find and invest in securities that will outperform other securities, so that the mutual fund will outperform other mutual funds in its class, and outperform the index.
With an index fund, instead of trying to locate individual stocks or bonds that will outperform others, the manager invests in securities that mirror an index, which is a statistical measure of how certain groups of stocks are performing. For example, an S&P 500 index fund will buy each of the 500 stocks in the Standard & Poor’s 500 Index — and the stocks will be bought in proportions that duplicate the relative market weightings in the index. The intent is to have a fund that matches the performance of the index.