Index Funds
Find out about index funds below or see research by our analysts
Important information - The value of investments can fall as well as rise, so you could get back less than you invest. This isn't personal advice. If you are at all unsure of the suitability of an investment for your circumstances, please seek advice. Once held in a pension, money is not usually accessible until age 55 (rising to 57 in 2028).
What are index funds?
Index funds, also known as tracker funds, have become increasingly popular in recent years. It’s easy to see why – they provide instant diversification in one simple, low-cost investment.
Instead of trying to outperform a particular stock market or index, they aim to closely track its performance, often by simply investing in every stock in the index they’re tracking. This is in contrast to an actively managed fund that will aim to beat the performance of an index.
They’re one of the simplest ways to invest, and as there’s no manager or analysts to pay, they’re often available at an extremely low cost (platform charges also apply).
There’s plenty of choice, too – from funds tracking UK markets to those focusing further afield. Index funds can be held in any of our investment accounts, including a Stocks and Shares ISA, Lifetime ISA (LISA), Self-Invested Personal Pension and a Fund and Share Account.
Wealth Shortlist Index Funds
To help narrow down the choice, our analysts have selected a number of index funds from across the major sectors for the Wealth Shortlist.
The Wealth Shortlist is designed to help investors build well-balanced and diversified portfolios. We put funds under the microscope to make sure that the list contains only the funds that our in-depth analysis indicates have the greatest performance potential.
We never take payment or commission for funds to appear on the Shortlist.
To use the Shortlist to build your portfolio, you should:
Be comfortable deciding if a fund fits your investment goals and attitude to risk. Learn more about risk.
Know how to choose and maintain a diverse mix of funds to reduce risk. Learn more about diversification.
For investors who don't feel comfortable building and maintaining their own portfolio, we offer ready-made solutions, which are aligned to broad investment objectives. For those who want extra help, you can also ask us for financial advice.
The Wealth Shortlist includes funds across a range of sectors and risk levels that won’t be right for everyone – it isn’t personal advice. A change to the list isn’t a recommendation to buy or sell. You’ll need to consider your own goals, attitude to risk, and wider portfolio before making any investment decisions. Funds can fall as well as rise in value, and you could get back less than you invest.
Frequently asked questions about index funds
An index fund (also known as a passive fund) aims to track the performance of a particular index, such as the FTSE 100 or the FTSE All Share. They offer a convenient way to gain exposure to a broad range of shares or bonds at a low cost.
An active fund will invest in just several companies in the index, perhaps as little as 30-40 in some cases, and the aim is to select the companies with the best potential in order to deliver performance that is much better than the index over the long term. This approach is more complex than simply tracking the index. It involves a great deal of research and costs are higher.
It can be difficult to unearth active fund managers capable of consistently outperforming an index, but we believe the highest-calibre fund managers share a specific set of skills and attributes. We seek those with a long, demonstrable track record of adding value by skill rather than a few lucky decisions. Our favourites can be found on the Wealth Shortlist.
An index is a basket of shares that represents the performance of a stock market. So, for example, the FTSE 100 is an index that contains the largest 100 companies listed on the UK stock market. Most major markets have indices that can be used to track their performance, for example the S&P500 in the US. Normally, these indices are run by an independent company that sets the rules on what is included and what proportion of the index each company represents. Often the biggest, most widely traded companies are the biggest holdings in the index.
Most index funds tend to fully replicate an index. For example, a fund tracking the FTSE 100 index will buy shares in all 100 companies. The size of each company within the fund will be proportionate to its size within the index.
Alternatively, index funds can partially replicate the index. This is where the manager holds a sample of shares that are considered to be representative of the wider index. This often occurs when the index being tracked is difficult or costly to fully replicate.
Yes - most index funds come as either income or accumulation units. With income units, income is paid out to fund holders as cash. This could provide you with an income stream, or the cash could be reinvested to buy additional units. With accumulation units, income is retained within the fund and reinvested, increasing the price of the units. Generally, for investors who wish to reinvest income, accumulation units offer a more convenient and cost-effective way of doing so.
Help and support
If you have any questions about index funds, you can speak to one of our UK-based client support experts.