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Chapter 3. Understanding Mutual Funds: T... > Passively Managed Funds (Index Funds...

Passively Managed Funds (Index Funds)

An important alternative to actively managed funds is passively managed funds, index funds. Because of their importance in our discussion throughout this book, I emphasize the definition.

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An index fund seeks to match a particular market index, such as the S&P 500 Composite Index, at minimum expense. It is an unmanaged portfolio, requiring only those changes necessary to keep it matched to its underlying index. For example, Vanguard's Index 500 Fund, one of the two largest mutual funds in the country, is designed solely to track and match the performance of the S&P 500 Index, arguably the best measure of general stock market performance, and the market measure used by most professional investors.



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