An index fund is a specific kind of investment vehicle or mutual fund that has a portfolio constructed to follow or match broad indexes like benchmark index components, such as the Standard & Poor’s 500 Index (S&P 500), the Nasdaq 100, and the Dow Jones Industrial Average.
In essence, an index is a common way to monitor the performance of collections of assets. Index fund purchases stocks that make up a full index . For instance, if the index tracks the Standard & Poor’s 500, an index of 500 of the top corporations in the United States, the fund purchases shares from every firm featured.