This type of mutual fund is designed to mimic the performance of a particular market index, such as Standard & Poor's 500 Composite Stock Price Index (S&P 500). Index funds are attractive to investors who are looking for a passive investment with broad market exposure, low operating fees, and low portfolio turnover.

The first index fund, the Vanguard 500, was created by John Bogle in 1976. Bogle, founder and former CEO of The Vanguard Group, created the first index fund after observing that complex investing strategies do not consistently outperform market returns. Since then, investors have found that index funds often deliver greater returns than actively managed mutual funds. According to the Investment Company Institute Fact Book (at http://www.ici.org/stats/res/index.html#Mutual%20Fund%20Fact%20Book), nearly 14 percent of all U.S. households own at least one index fund.

If you own an index fund that tracks the S&P 500, it will consist of stocks from that market, which represents the 500 leading companies in leading industries. Index funds are often based on other markets such as the DJ Wilshire 5000 Total Market Index (at http://www.wilshire.com/Indexes/Broad/) and the Russell 2000 (at http://www.wilshire.com/Indexes/Broad/). You can purchase an index fund through a broker or through a mutual fund family.

While index funds have lower fees than traditional mutual funds, they sometimes require a high minimum investment. However, sometimes you can get this requirement waived if you enroll in an automatic investment program. To read more about index funds, visit www.sec.gov.