What is an index fund?
An index fund is a fund that simply tracks an index — say the 500 largest companies in the US — instead of trying to beat it. No manager picks stocks; the fund buys them all in the same proportions as the index. That is why the costs are low.
Each tile is a stock. The big companies take up most of the index.
Active or passive
An active fund has a manager who picks stocks and tries to do better than the market. That costs salaries and research, so the fund typically charges 1–2% a year. A passive fund — an index fund — does not pick. It follows the list. That costs almost nothing, often 0.1–0.3%.
Historically, most active funds have not beaten their index over ten years or more once costs are deducted. Not because the managers are stupid — because the market is hard to beat, and because 1.5% a year for 20 years is an enormous sum.
What an index is
An index is just a list with rules. The OMX C25 is the 25 most traded stocks in Copenhagen. The S&P 500 is the 500 largest in the US. MSCI World is about 1,500 large companies in 23 developed countries. The fund buys the list — and when the list changes, the fund changes with it.
Index fund vs. ETF — what is the difference?
Almost all ETFs are index funds, but not all index funds are ETFs. An ETF trades on the exchange all day; a classic index fund (say from a bank) is priced once a day. Both track the index. Look at the TER and the tax treatment — that is usually where the difference is.
The typical beginner's mistake
Picking the fund that rose the most last year. Last year's winner is rarely next year's. Look at what the fund tracks and what it costs — not at the latest return.
How you see it in Kiggo
Look up an index fund or ETF in Kiggo and you see clearly which index it tracks, what it costs a year and how large it is. Kiggo deliberately gives no long-term "verdict" on a fund — it keeps swapping stocks — and shows instead what matters: costs, diversification and the ten largest holdings.
Related terms
Frequently asked questions
Which index should I choose?
It depends on how broadly you want to spread. A world index (MSCI World or MSCI ACWI) covers the most. A country index like the C25 is 25 companies — that is not diversification, it is a single market.
Can an index fund beat the market?
No — by definition it tracks the market, minus its costs. The point is not to beat the market but to get the market's return cheaply and without guessing.
Kiggo explains — Kiggo does not advise. We never tell you what to buy or sell, and key figures can only be compared between companies in the same industry. The decision is yours. Last updated 2026-09-07.
Written by Claus Frisch, founder of Kiggo. Not an adviser, not a bank — Kiggo explains, you decide.
