Index Funds
In short
Index funds are investment funds designed to track the performance of a specific market benchmark, such as the FTSE 100. They aim to match the returns of the market rather than beat it.
In plain words
Instead of picking individual winning stocks, you buy a tiny piece of every company in a specific list. This way, your money grows as the whole market grows. It is a low-cost way to diversify your savings.
A simple example
If you buy an index fund that tracks the top 100 UK companies, you own a small part of all of them at once. If most of those companies do well, your investment goes up.
Why it matters
They are much cheaper than managed funds because no highly-paid expert is needed to pick stocks. This lower cost means more money stays in your pocket over many years.
Easy to mix up
Do not confuse them with actively managed funds, where a professional tries to pick specific stocks to outperform the market.