An index fund tries to track a specified benchmark. That benchmark might cover the total U.S. stock market, a narrow industry, small companies, foreign bonds, or almost any other defined group.
Read the benchmark name
A technology index and a total-market index can both be passive while carrying very different concentration. The fund's prospectus explains what it tracks and how closely.
Passive does not mean low risk.
Tracking has costs
Expense ratios, trading costs, taxes, and sampling methods can cause fund returns to differ from the benchmark. The gap is called tracking difference.
A low fee can help, but holdings still come first.
Diversification depends on what is inside
Owning hundreds of securities can still leave heavy exposure to one country, sector, or company size. Compare weights, not only the number of holdings.
The label is the beginning of the research.
Sources
- U.S. Securities and Exchange Commission, Index Funds.
- FINRA, Exchange-Traded Funds and Mutual Funds.