What is an index fund?

An index fund is one that mirrors the performance of the underlying index. For example if there is an index fund based on the BSE Sensex, the investments done by the fund manager would be in exactly the same ratio as the % weightage of stocks in the BSE Sensex. He would invest in only those 30 stocks and stay away from other stocks. Hence the performance of the fund would be an exact replica of how the BSE performs.

First answer by Anandvijayakumar. Last edit by Anandvijayakumar. Contributor trust: 254 [recommend contributor]. Question popularity: 1 [recommend question]