We are independent & ad-supported. We may earn a commission for purchases made through our links.

Advertiser Disclosure

Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.

How We Make Money

We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently from our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What are the Different Types of Index Fund?

By Jennifer Voight
Updated May 17, 2024
Our promise to you
WiseGeek is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGeek, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

An index fund is a type of security whose value follows a measure, or index, of a specific segment of a financial market. The most common are stock index funds, which follow a particular stock market index, like the S&P 500. Although stock index funds are the most well-known type, index funds may follow other types of indicators. There are also bond index funds, commodity index funds, and index funds that attempt to replicate various segments of an industry, like real estate, or the economic health of a country, like the All Ordinaries Index, which attempts to replicate the state of the Australian economy. Some index funds even track indices tied to social responsibility or environmental concerns, like the NYSE Arca Environmental Services Index.

A stock market index fund may follow a global or world index, which represents a group of companies from various countries. The index fund may alternatively follow a national index of a particular nation, mirroring the state of the country's economy. Two examples of a national index are the Japanese Nikkei 225 and the British FTSE 100. Although the terms global index or world index might suggest that the index fund follows the global economy, that is not the case. Global or world index fund merely indicate that the companies in the fund represent many countries. An example of a global index fund is the Morgan Stanley Capital International (MSCI), which contains stocks from 1,500 companies with a global presence in 23 developed market countries.

Bond index funds follow specific corporate or municipal bond indices, like the Lehman Brothers Aggregate Bond Index, which includes government, mortgage backed, and corporate fixed-income securities. Other bond index funds sample short, medium, and long-term bond markets. Bond funds in general are a security that provides cash to a government or company in return for a security that has a specific maturity date. At maturity, the bond holder may cash in the bond for the face value plus interest.

Commodity index funds follow specific commodities markets and commodities futures. These index funds provide opportunities for less experienced investors to invest in a market that has a reputation for being complex, risky, and best left to professionals. An advantage to investing in commodities index funds is that, historically, commodities fluctuate independently of stock and equities because commodoties fluctuate in response to supply and demand. This provides an investor with a more diverse portfolio.

Although by definition an index fund is a passively managed security that follows a specific market index, some index fund managers are stretching the definition of index funds by adopting different indexing techniques, many of which require some degree of active management. Some index fund managers are taking a more active, hands-on approach by utilizing timing strategies and rules to more closely follow an index. Yet this approach may negate one of the primary advantages of an index fund: lower fees. Also, index funds outperform 80 percent of actively managed mutual funds. The goal of index funds is not to beat the index, as with traditional stock and equity funds, but to match it.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.

Discussion Comments

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.