Products & Their RisksQuestion 116 of 398
An index fund is designed to:
a.Outperform its benchmark through active stock selection
b.Match the performance of a specific market index by holding its component securities
c.Guarantee a fixed annual return regardless of the market
d.Invest only in short-term money market instruments
Explanation
An index fund follows a passive strategy, holding the securities that make up a target index (such as the S&P 500) in order to track that index's return rather than beat it. This passive approach typically results in lower turnover and lower expense ratios than actively managed funds.
Law Reference: Investment Company Act of 1940Practice all 398 questions free — no signup required.
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