What are index funds?

Index investment funds are collective investment undertakings whose investment policy strives to mimic a certain index.

For example, an index fund tracking the IBEX 35 will try to maintain an asset portfolio similar to that of this financial market index. If the IBEX's composition changes at any time (a company goes in or out), the manager changes the fund's assets accordingly to keep following the same proportion.

Otherwise, index funds work in the same way as any other fund: a management company uses the fund's capital to buy and sell assets in view of achieving a certain return while assuming certain risk. Investors may subscribe the shares/units or redeem them for their net asset value on the trade date, determined at market close.

Differences between index funds and exchange-traded funds

Even though index funds and exchange-traded funds (ETFs) may seem the same because of their main characteristic (mimicking a benchmark index), there is a major difference between them. Exchange-traded funds are traded in secondary stock markets (as if they were shares), while interests in index funds are bought or sold at their net asset value through the management company.

Remember that you can find out more information about our investment funds and their characteristics on our website.


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