An index fund is a type of mutual fund with a portfolio constructed to match or track the components of a market index, such as the Standard & Poor's 500 Index (S&P 500). This type of fund aims to buy a broad array of assets in line with its mandate in order to track the general trend of the markets. An index fund provides broad market exposure, low operating expenses, as well as low portfolio turnover. These funds adhere to specific standards (e.g. efficient tax management, or the reduction of tracking errors) implemented by pre-determined rules that endure regardless of the current state of the market.
'Indexing' is a passive form of fund management that has been successful in outperforming most actively managed mutual funds. While the most popular index funds track the S&P 500 - a number of other indexes, including the Russell 2000 (small companies), the DJ Wilshire 5000 (total stock market), the MSCI EAFE (foreign stocks in Europe, Australasia and the Far East) and the Barclays Capital Aggregate Bond Index (total bond market) are widely used for index funds.