What Is an Index Fund?

An index fund is a mutual fund (or ETF) that simply tracks a market index — like the NIFTY 50 — rather than trying to pick winners and beat the market. It's the flagship of passive investing.

How it works

The fund holds the same stocks as its target index, in the same proportions. When the index rebalances, the fund follows. There's no star fund manager making calls — the goal is to match the index's return, minus a small cost, not to outperform.

Why low cost is the edge

Because it's passive, an index fund has a very low expense ratio. Over long periods, most active funds fail to beat their benchmark after fees — so a cheap index fund that reliably delivers the market return often wins out. This is the core case for passive investing.

Index funds vs active funds

Active funds try to beat the market (and charge more for the attempt); index funds accept the market return at minimal cost. Many investors blend both. The index a fund tracks, and its holdings, are visible in the fund data.