What is an index fund?

An index fund is accurately described as a type of mutual or exchange-traded fund designed to replicate the performance of a specific market index. This investment strategy allows investors to gain exposure to a broad range of securities while aiming to mirror the returns of a particular index, such as the S&P 500 or the TSX Composite Index.

The appeal of index funds primarily lies in their passive management approach, which typically results in lower fees compared to actively managed funds. Since index funds are composed of the same components as the index they track, they provide investors with diversification and reduce the risks associated with investing in individual stocks. By investing in an index fund, investors can benefit from the market's overall performance rather than betting on the success of specific securities.

Other options do not accurately represent the features of an index fund. For example, one option mentions investing in high-risk assets, while index funds typically aim for stable, long-term growth and diversification rather than focusing on high-risk investments. Another option refers to guaranteed fixed returns, which is not characteristic of index funds, given that they are subject to market fluctuations. Lastly, the mention of exclusively investing in commodities is incorrect, as index funds can encompass a wide array of asset classes, including stocks and bonds, not just