Understanding the Differences Between Index Funds

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Index Fund Center

Understanding the Differences Between Index Funds

David Dierking Nov 29, 2016



To learn more about index funds, check out our Complete Guide To Index Investing.


Cost


Funds can charge whatever fee level they choose. Some charge as little as possible in order to attract assets, while others charge more. Investors should generally target index funds with the lowest possible expense ratios. This helps to not only ensure that shareholders match the underlying index’s total return as closely as possible, but also saves shareholders money.

For more information, read our article on how to take a closer look at index funds.


Tracking Error


As mentioned earlier, higher expense ratios result in larger tracking errors. Trading frequency within the fund can also affect its ability to track. For example, if the S&P 500 swaps out and replaces a number of components but the fund only rebalances on a quarterly basis, the fund and the index are going to be out of sync until the fund can be rebalanced.


Structure



Performance


Funds with high expense ratios can find themselves significantly underperforming their index over time. The Rydex S&P 500 Fund (RYSPX), for example, charges a 1.56% annual expense ratio. Since the fund’s inception on May 31, 2006, it has underperformed the S&P 500 by roughly the exact amount of its expense ratio, 1.55%, per year.


The Biggest S&P 500 Index Funds


To get more data on the index funds listed, click on their ticker symbols.

Vanguard 500 Index Fund (VFIAX)

  • Total Assets: $260 billion
  • Expense Ratio: 0.05%
  • Front-End Load: none
  • Back-End Load: none
  • 12b-1 Fee: none

Fidelity 500 Index Fund (FUSVX)

  • Total Assets: $107 billion
  • Expense Ratio: 0.045%
  • Front-End Load: none
  • Back-End Load: none
  • 12b-1 Fee: none

T. Rowe Price Equity Index 500 Fund (PREIX)

  • Total Assets: $28 billion
  • Expense Ratio: 0.27%
  • Front-End Load: none
  • Back-End Load: none
  • 12b-1 Fee: none

Schwab S&P 500 Index Fund (SWPPX)

  • Total Assets: $23 billion
  • Expense Ratio: 0.09%
  • Front-End Load: none
  • Back-End Load: none
  • 12b-1 Fee: none

Northern Stock Index Fund (NOSIX)

  • Total Assets: $7 billion
  • Expense Ratio: 0.10%
  • Front-End Load: none
  • Back-End Load: none
  • 12b-1 Fee: none

Identify ETF alternatives to index mutual funds with the Mutual Fund to ETF Converter tool on ETFdb.com.


Bottom Line


To learn more about index funds, check out our Index Fund Center.


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