GlossaryPassive fundTracker fundIndex trackerPassive investing

Index fund

An index fund aims to replicate the return of a specified market index rather than beat it, and can be either a listed ETF or a traditional unlisted fund dealt at NAV.

Definition

An index fund is a fund whose objective is to match the performance of a stated index, such as the FTSE All-World or the S&P 500, as closely as possible after costs. Holdings are determined by the index rules, not by a manager's views. Index funds come in two wrappers: ETFs, which are listed and trade intraday, and traditional index funds, which are bought and sold once a day at NAV through a platform or the fund house.

Why it matters

Because index funds do not pay for stock selection, their ongoing charges are generally low, and their behaviour is predictable: the return should equal the index return minus costs. That makes tracking difference and tracking error the key quality measures rather than outperformance. They are the building blocks of most robo-advisers and model portfolios.

In the API

profile.kind identifies index funds, benchmarkName gives the index, structure shows the wrapper and headlineMetrics.ter the cost. Example values:

json
{
  "profile": { "kind": "index" },
  "benchmarkName": "FTSE All-World Index",
  "structure": "UCITS ETF",
  "headlineMetrics": { "ter": 0.22 }
}

Comparing calendarReturns.fund with calendarReturns.benchmark year by year gives the realised tracking difference.

Common pitfalls

Not every fund with an index in its name is an index fund; many active funds reference an index as a comparator. "Smart beta" or factor funds follow rules-based indices that differ markedly from the parent market index. Index funds can also replicate physically or synthetically; see replication method.