Index fund explained — the simple way most people invest

An index fund is a type of investment fund designed to track the performance of a market index — such as the FTSE 100 (the 100 largest UK companies) or the S&P 500 (500 large US companies). Rather than trying to beat the market by picking winning stocks, an index fund simply aims to match it by holding all (or a representative sample) of the companies in the index.

Why index funds are popular

• Low cost: because they require no expensive fund managers picking stocks, fees are very low — often under 0.25% per year
• Diversification: a single global index fund can hold thousands of companies across dozens of countries, spreading risk
• Performance: research consistently shows that most actively-managed funds fail to beat their benchmark index over the long term, after fees
• Simplicity: you don't need to research individual companies

How to invest in index funds

In the UK, index funds are typically bought through an investment platform within a Stocks and Shares ISA (for tax-free growth) or a pension. Popular providers include Vanguard, iShares and Fidelity. This is general information, not financial advice — consult a regulated adviser for personal recommendations.