by 
The Curious Bag
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According to the U.S. Securities and Exchange Commission, an index fund is a type of mutual fund or unit investment trust that is typically invested in for profit by an individual or corporation.
Objective
An index fund's objective is to achieve approximately the same return as a particular market index, such as the S&P 500 Composite Stock Price Index. The index does this by investing primarily in stocks or bonds of companies that are in a selected index.
Management
The management of an index fund is comparatively more passive than non-index funds. The manager only has to track a relatively fixed index of securities.
Costs
An index fund typically has lower fees and expenses due to less trading and more favorable income tax consequences.
Risks
Risks for an index fund are comparable to those of stocks and bonds as they account for the majority of an index fund's composition. Additionally, because an index fund focuses on a particular index, it may be less flexible in reacting to price declines.
Warning
The SEC advises investors to carefully study all the information provided by an index fund, including its prospectus and shareholder reports, before investing.
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