What an index fund tracks and why the fund’s costs still matter
An investor bulletin explains how index funds aim to follow a market benchmark.
An index fund seeks to follow a benchmark made up of selected securities. The SEC's investor bulletin explains that funds can hold all of the securities in an index or use a sample to approximate it.
The benchmark determines the exposure the fund is trying to deliver. A broad market index and one focused on a single sector can behave quite differently. Fees, trading costs and differences in holdings can also affect how closely the fund's result follows the index.