An index fund is a mutual fund, exchange-traded fund (ETF), or unit investment trust that follows a passive strategy designed to match the return of a particular market index—such as the S&P 500—before fees. It typically does this by holding the stocks or bonds in that index, or a representative sample of them.
Because the fund is not trying to beat the market through active stock-picking, it usually trades less often and charges lower fees than many actively managed funds. Over time, those lower costs can make a meaningful difference in an investor’s net returns.
Source: U.S. Securities and Exchange Commission, Investor.gov — Index Fund.