what is an index fund and how does an index fund work?

Answer 1

An index fund used to be an unmanaged fund of stocks that was designed to replicate the performance of a given stock index such as the Dow Jones Industrials, S&P 500, etc. However, they have proliferated so much that there are not so called index funds that are not exactly that any longer. For example there is one that is an index on the Value Line top 100 stocks--symbol PIV. If that is not a managed fund, I do not know what is.

Most are trade like stocks. Some are sold by mutual fund companies.

The advantages of most are that they have low expense ratios, sometimes very low, and since they in general are unmanaged they do not have a lot of year end capital gains distribution upon which one would be taxed.

Here is a link to a compilation of nearly all, if not all, of them where you can research therm.

http://www.etfconnect.com/select/rank/default.asp?fType=2&oType=6

Answer 2

In index fund is a mutual fund that only buys stocks included in the index. In essence, the money you put into an index is directly tied to the index it's associated with. If the index goes up, you make money. If the index goes down, you lose money.

Answer 3

An index fund is a mutual fund that follows an index, such as the S&P 500.