Investing · General financial education

Index funds

An index fund follows rules to track an index. “Index” does not mean magically broad. It means there is a method.

In more detail

An index measures a basket by published rules: who is included, how it is weighted, when it is swapped. You cannot buy the index itself; the fund is the approximation. A basket of 50 technology names remains a technology basket.

Background

ETFs and index funds are related but not identical: many ETFs are index-tracking, not every index fund trades on an exchange, and some ETFs are actively managed. Concentration comes from the rule (for example market-value weights), not from the word “passive”. Check the methodology, not only the label.

An example

Two funds are both called “index”. One follows a basket of many countries and sectors, the other a basket of 50 large technology names. Both are rules-based. Only one is thematically narrow.

A common misconception

Index = automatically the whole market.

Index means: a published rule. The rule can be narrow or wide.

Source: Investor.gov · Index funds. Last reviewed: 2026-10-26. Editorially reviewed on 2026-10-26. Next review 2027-10-26. Version 0.2.0. Finmon explains. It does not advise. Not investment, tax or legal advice.