Editing Index fund (section)

==Advantages==

===Low costs===
Because the composition of a target index is a known quantity, relative to actively managed funds, it costs less to run an index fund.<ref name="ssrn.com"/> Typically expense ratios of an index fund range from 0.10% for U.S. Large Company Indexes to 0.70% for Emerging Market Indexes. The expense ratio of the average large cap actively managed mutual fund as of 2015 is 1.15%.{{Cn|date=February 2025}} If a mutual fund produces 10% return before expenses, taking account of the expense ratio difference would result in an after expense return of 9.9% for the large cap index fund versus 8.85% for the actively managed large cap fund.  Similarly, if a mutual fund produces only a 1% return before expenses, taking account of the expense ratio difference would result in an after expense return of 0.9% for the large cap index fund versus a 0.15% loss for the actively managed large cap fund.

===Simplicity===
The investment objectives of index funds are easy to understand. Once an investor knows the target index of an index fund, what securities the index fund will hold can be determined directly. Managing one's index fund holdings may be as easy as {{clarify span|rebalancing|date=December 2020}} every six months or every year.

===Lower turnovers===
Turnover refers to the selling and buying of securities by the fund manager. Selling securities in some jurisdictions may result in [[capital gains tax]] charges, which are sometimes passed on to fund investors. Even in the absence of taxes, turnover has both explicit and implicit costs, which directly reduce returns on a dollar-for-dollar basis. Because index funds are passive investments, the turnovers tend to be lower than actively managed funds.

===No style drift===
[[Style drift]] occurs when actively managed mutual funds go outside of their described style (i.e., mid-cap value, large cap income, etc.) to increase returns. Such drift hurts portfolios that are built with diversification as a high priority. Drifting into other styles could reduce the overall portfolio's diversity and subsequently increase risk. With an index fund, this drift is not possible and accurate diversification of a portfolio is increased.