Glossary · Fund structure
Index fund
Tracker fund
A fund that aims to match the return of a market index, such as the FTSE 100 or the S&P 500, by holding the shares or bonds in it.
An index fund — also called a tracker fund — follows a published index instead of relying on a manager’s choice of holdings. It holds every company or bond in the index in proportion, or a representative sample of them, and its return is expected to differ from the index’s mainly by its costs.
Index funds come in two main structures: open-ended funds such as OEICs and unit trusts, bought and sold at a once-a-day price through a platform, and ETFs, which trade on a stock exchange during the day. The same index is often tracked by several funds from different providers, at different charges.
Tracking an index does not reduce the risk of the market it covers: when the index falls, the fund falls with it. How closely a fund has followed its index is measured by its tracking difference.
On Fundology: Global share index funds and ETFs
Related terms
- ETFA fund whose units trade on an exchange throughout the day like a share.
- OEICA UK fund set up as a company that creates or cancels shares as money comes in or goes out, priced once a day at the value of what it holds.
- Tracking differenceHow far a fund’s return differed from the return of the index it tracks over a period — usually a small shortfall close to its charges.
- OCFThe annual cost of running a fund, expressed as a percentage of the money you have invested in it.
- BenchmarkAn index a fund’s performance is measured against, stated with its own currency and return basis.
More terms on fund structure
Definitions describe how a term is used on Fundology. This is information, not advice.