What is an Index Fund?

What is an Index Fund?

An index fund is a type of mutual fund which constructs its portfolio by tracking the composition of a standard market index such as the Nifty 50 or the Sensex. The fund, not only invests in stocks which constitute the benchmark index, but also in the proportions in which they are present in the index. 

For example – a Midcap 150 index fund will track the Nifty Midcap 150 index.  The fund manager simply replicates the portfolio of the index in quantity, stocks and proportion. The fund manager has no discretion over stock selection/ strategy of the mutual fund and so the fund has no fund manager bias.

Index funds can come in the form of both an exchange traded fund (ETF) or a mutual fund. See our FAQ on What are the major differences between Index Funds vs ETFs? to learn more. 

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