A mutual fund designed to match or track the stocks in that market index, such as the Standard & Poor’s 500 Index (S&P 500). These type of mutual funds provide a great deal of diversity, market exposure, and low operating expenses in the selected category of stocks.
Indexed mutual funds have been used to successfully outperform most actively managed mutual funds. The most popular index funds track the S&P 500, a number of other indexes, including the Russell 2000 (small companies), the DJ Wilshire 5000 (total stock market), the MSCI EAFE (foreign stocks in Europe, Australasia, Far East) and the Lehman Aggregate Bond Index (total bond market). Using an index fund is a passive form of investing that rarely outperforms the broad indexes.