What is an Index?

In this case, we are talking about a stock index.  A stock index is a way to measure part of the stock market.  Two common examples are the Dow Jones Industrial Average and the Standard and Poor 500 or S&P 500.  They are often used to compare portfolios against because they are an average of the markets.

What is an Index Mutual Fund?

An index mutual fund is simply a mutual fund that is invested in the corporations of an index with the same percentages.  Therefore, an S&P 500 index fund will be invested in all the 500 stocks within the S&P 500.

Instead of having a manager choose and research all the securities in a mutual fund, they are chosen as per the index.  You don’t have to depend on someone else’s “expertise” and talent when choosing stock because they are already on an average index.

Benefits to Choosing No Load Index Mutual Funds

Of course, by choosing a no load fund, you don’t have to pay fees.  If you ever find an index mutual fund that charges fees, stay away because obviously they aren’t putting in any work to choose securities because they are just the securities in the index.  It should be a no load index mutual fund.

Choosing these types of funds is very beneficial because you don’t have to choose them yourself and they are already an average of the market.  Instead of depending on what may be conservative or aggressive or worrying about the choices by someone else, you can be pretty sure that if they market is doing well, you will be doing well.

If you are investing in a fund for your retirement portfolios, index mutual funds are also a great choice.  These are often a much better choice than many other investments and if you get an employer match along with the tax savings, that can mean a lot more money towards retirement.