Index Fund
A fund that tracks a benchmark instead of trying to beat it.
What is Index Fund?
A passively managed fund holding the constituents of an index. Low turnover and low fees; the goal is to match the benchmark minus a small tracking difference, not to outperform.
Index Fund: a worked example
An S&P 500 index fund charging 0.03% versus an active large-cap fund charging 0.75%.
More terms in Securities & Instruments
Common Stock
An ownership share in a company, with voting rights and last claim on assets.
Preferred Stock
Equity with a fixed dividend and priority over common, usually without votes.
Bond
A loan to an issuer that pays interest and returns principal at maturity.
Coupon Rate
The bond's stated annual interest as a percentage of par.
Yield to Maturity (YTM)
The total annualized return if you buy today and hold to maturity.
Par Value (Face Value)
The principal repaid at maturity, conventionally $1,000 per bond.
Duration
A bond's price sensitivity to a 1% change in interest rates.
Credit Rating
An agency's assessment of an issuer's likelihood of default.