Index Mutual Funds vs. Actively Managed Mutual Funds
Index funds, on the other hand, are designed to simply follow a benchmark. In this way, they are great vehicles for providing investors with exposure to a specific sector or market without veering too far off course pursuing above average returns. Index funds also tend to be a bit more transparent than active funds since their composition tends to change relatively little over time. Active fund managers have the ability to turn over significant chunks of their portfolios quickly. Many active funds only publish their holdings every quarter.
Be sure to also check out our Guide to the Turnover Ratio.
The Benefits of Index Fund Investing
Other advantages of index funds:
- They are easy to use. Most require just a one-time application to open an account.
- Most are broadly diversified owning hundreds of securities.
- Many have razor-thin expense ratios and carry no transaction fees.
- With little trading inside the portfolio, index funds tend to be especially tax efficient.
Many index mutual funds offer additional flexibility by providing ETF counterparts. For example, Vanguard offers the Vanguard S&P 500 ETF along with the Vanguard 500 Index Fund. The advantage of an ETF is that it allows intraday trading, whereas most mutual funds price only once at the end of the day. Many ETFs also come with a lower expense ratio that their corresponding mutual fund.
For ETF alternatives to passively managed mutual funds, be sure to check out the Mutual Fund to ETF Converter tool on our sister site, ETFdb.com.
Some of the Biggest Index Mutual Funds
|Ticker||AUM (Billions)||Expense Ratio||Stance|
|VTSAX||$560||0.04%||Seeks to invest in 100% of investable companies in the U.S. stock market.|
|VFIAX||$316||0.04%||Seeks to replicate the performance of the S&P 500.|
|VTIAX||$271||0.11%||Seeks to invest in companies located in developing and emerging markets outside the U.S.|
|VBTLX||$180||0.05%||Seeks to provide broad exposure to the entire U.S. investment grade bond market.|
|FUSVX||$119||0.05%||Seeks to replicate the performance of the S&P 500.|