Index tracker

An index tracker is also known as index . It is a collective investment scheme which is designed to reflect the movements of an index of a specific financial market. By holding all the securities in the index, tracking can be achieved. It can also be achieved by statistically sampling the market and holding representative securities.

Most of the index funds rely on the computer model with less human involvement in the decision of purchase of securities and so it is considered as a kind of passive management.

The lack of active management in the index fund gives the advantage of lower fees. But the lower fees will reduce the return to the investor in relation to the index. The difference between the index performance and the fund performance is known as tracking error. Index funds can be availed from various investment managers. There are two kinds of indexing. They are called as synthetic indexing and enhanced indexing.

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