Business and Personal Finance Dictionary

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• INDEX FUND
  
  An index mutual fund is designed to mirror the performance of one of the major stock or bond indexes, such as Standard & Poor's 500-stock Index (S&P 500) or the Russell 2000, by purchasing all of the securities included in the index, or a representative sample of them. Each index fund aims to keep pace with an index, not to outperform it. This strategy can be successful during a bull market, when an index reflects increasing prices. But it may produce disappointing returns during economic downturns, when an actively managed fund might take advantage of investment opportunities where and when they arise. Because the typical index fund's broadbased portfolio is not actively managed, most index funds have lower-than-average management costs and smaller expense ratios. That means less of the fund's growth goes to pay expenses, and more can be returned to the fund's investors. However, not all index funds provide the same level of performance.
  
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