Index Fund

An index is just a defined list of companies, maintained by an index provider according to published rules. An index fund buys that list in the stated proportions and does nothing else. There is no judgment involved, which is precisely the design.

Because there is no judgment, there is little to pay for, and index funds typically carry very low expense ratios. That is the mechanical reason they are cheap, rather than a promotion.

The argument in favor is well known and comes with a body of research behind it: over long periods, most funds run by people picking holdings have not beaten the plain index net of their fees. The counter-argument is that an index fund holds everything in the list including whatever is currently expensive, because the rules give it no way to decline.

Index funds and ETFs overlap heavily. Many index funds are packaged as ETFs; the difference is the wrapper and how it trades, not the idea.