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Index funds have gained significant popularity among investors in recent years. These funds are designed to track the performance of a specific market index, such as the S&P 500 or the Dow Jones Industrial Average. By investing in a diversified portfolio that mirrors the composition of the index, index funds offer investors a low-cost and efficient way to gain exposure to a broad range of stocks or other assets.

Unlike actively managed funds, which rely on the expertise of fund managers to select individual securities, index funds follow a passive investment strategy. This means that the fund’s holdings are determined by the index it tracks, and the fund manager’s role is primarily to ensure that the fund replicates the index’s performance as closely as possible.

Index funds have several advantages over actively managed funds. They tend to have lower expense ratios, as they require less research and trading activity. Additionally, index funds offer broad market exposure, reducing the risk associated with individual stock selection. These factors, combined with their simplicity and transparency, have made index funds a popular choice for both individual and institutional investors.