Question of the Week: What are index mutual funds?

We have written a blog post about index funds before, so the latest part in our blog series on the different types of mutual funds will get right to the point. 

An index fund is a mutual fund that attempts to mirror a specific index. This could be the TSX/S&P Composite for example. By mirroring this index, the value of the fund will go up and down at nearly the same rate that the index goes up or down. This is a form of passive management, as there is no need to pick and choose stocks to try and beat the market.

Because index funds use passive management, they tend to offer lower fees than actively managed funds. Lower fees do not necessarily mean this is a better fund for your investing portfolio, but it is one piece of information you should consider when choosing investments.

The Nova Scotia Securities Commission does not provide investment advice. We are not advising or recommending that investors purchase the mutual funds in our posts. The posts are simply to educate investors so they can be an informed investor when making investment decisions.