What is an index?
In financial markets, an index is an indicator of the overall change in the values of some or all of the securities listed on a particular market. The index is constructed as a portfolio in which each security is weighted according to its market importance.
Where have you heard about index funds?
Everywhere. As an investor, you will be made constantly aware of the movements of indices during the course of the trading day and sometimes over a longer horizon. You may be invested in financial products that are linked to one or other index.
What you need to know about index funds...
Indices are designed to give an indication of the mood and performance of a particular market, with a net reading up or down once all positive and negative movements of individual securities have been added up.
'Tracker' mutual funds and exchange-traded funds seek to mirror the construction of the index in question. Indices are used also to benchmark fund-manager performance.