UK finance jargon - in plain English
Investment funds that track a market index automatically, rather than trying to beat it.
An index fund is a type of investment fund that aims to mirror the performance of a specific market index, such as the FTSE 100 or S&P 500. Rather than a fund manager picking individual stocks to try to outperform the market, an index fund simply holds all (or a representative sample of) the companies in the index. Because they require less active management, index funds typically charge much lower fees than actively managed funds. Over long time periods, many actively managed funds underperform their benchmark index after fees, though this varies by market and category.
A FTSE All-World index fund holds thousands of companies across dozens of countries. If global markets grow by 8% in a year, your fund grows by roughly 8% minus a small annual fee (often 0.1% to 0.2%). An actively managed fund trying to beat the market might charge 1% or more, and most do not consistently outperform.
The value of investments can fall as well as rise. Past performance is not a guide to future returns. Index funds are not guaranteed to make money. This page is for education only and is not financial advice.
Last updated: June 2026. Sources: HMRC / GOV.UK / Student Finance England / FCA where relevant.
People assume that because index funds are passive, they are safe. They are not immune to market downturns. The key benefit is low cost and broad diversification, not protection from falls.