What is the function of an index fund?

An index fund is specifically designed to replicate the performance of a particular market index. This means that the fund aims to achieve the same return as the index it tracks, such as the S&P 500 or the FTSE 100, by holding the same stocks in the same proportions as that index. This passive investment strategy allows investors to gain broad market exposure and typically has lower management costs compared to actively managed funds.

By focusing on replicating the index rather than attempting to outperform it, index funds benefit from market growth and provide a diversified investment option for individuals looking to match market performance without the risks and costs associated with frequent trading or the selection of individual stocks. This makes them a favored choice for many investors seeking long-term growth and reduced risk.