Index funds have risen in popularity tremendously over the past few years, so I wanted to examine what an index fund is and why so many people like index funds. An index fund is a mutual fund that attempts to copy the performance of a certain stock market index. Most commonly, index funds copy the S&P 500, though some track the Wilshire 5000, Russell 2000, and NASDAQ 100. The index fund keeps its weightings precisely on par with that of the index it is tracking. 
So you ask, why are index funds so popular? Index funds are great because the fees are very low. For example, the most popular index fund is the Vanguard 500 Index Fund (NASDAQ: VFINX), this fund has an expense ratio of just 0.18%. The reason companies like Vanguard can keep their index fund expenses so low is that computers do most of the work, and there are not many salaries to pay out.
Another reason index funds are popular is they are extremely tax efficient. A large problem with mutual funds is that they are required by law to pay capital gains each year. Funds that trade often do not have any tax advantages like an index fund has. Index funds are able to delay capital gains taxes because they hold the stock for a long time, meaning these index funds can keep producing investment returns on the money that most funds would be paying out in capital gains taxes.
Index funds have a good track record of outperforming the average fund manager. Index funds are said to beat the average mutual fund about 80% of the time, and it can be even more often than that when considering tax efficiency. Index funds are a great way to invest in the stock market simply and efficiently.
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