Finance glossary
Index Fund
Also known as: Tracker fund, Passive fund
In simple terms
An index fund is a low-cost investment that simply tries to copy a whole market — like the FTSE 100 — rather than paying a manager to pick individual shares.
On this page
What does index fund mean?
An index fund (or “tracker”) is a fund designed to follow the performance of a market index, such as the FTSE 100 or the S&P 500. Instead of a manager choosing which shares to buy, it holds the same investments as the index in roughly the same proportions.
Because there is no expensive stock-picking, index funds usually charge much lower fees than “actively managed” funds.
How an index fund works
The fund buys the constituents of an index so that its value rises and falls with that market. When companies enter or leave the index, the fund adjusts to match.
You can hold index funds inside a Stocks & Shares ISA or a pension to shelter returns from tax. Many are available as traditional funds or as ETFs.
How could this affect me?
Lower fees mean more of any return stays with you, which over decades can make a large difference. But a tracker will never beat its market — it aims to match it, minus costs — and it falls just as the market does.
Index funds are a common, straightforward building block for long-term investors who do not want to bet on individual companies.
Things to watch out for
- A tracker follows the market down as well as up — your capital is still at risk.
- Check the ongoing charges figure; even small differences compound over time.
- Some “index” funds track niche or leveraged indices that behave very differently — read what it actually tracks.
General information, not personal advice
Consumer Credit is an independent information service. We do not provide regulated financial advice or sell financial products. For advice on your own situation, speak to an appropriately authorised firm or a free service such as MoneyHelper. About Consumer Credit.
Sources
We checked this page against these official and authoritative sources.
- MoneyHelper, Investment funds explained (opens in a new tab). Accessed 22 Aug 2026.
- FCA, InvestSmart — the basics of investing (opens in a new tab). Accessed 22 Aug 2026.