What is the main purpose of an index fund?

The main purpose of an index fund is to replicate the performance of a specific index. Index funds are designed to provide a way for investors to invest in a broad market index, such as the S&P 500, by purchasing a fund that holds the same stocks in the same proportions as that index. This passive investment strategy aims to mirror market performance rather than attempt to outperform it, which is the hallmark of actively managed funds. By doing so, index funds often have lower management fees and expense ratios, and they also allow for a diversified investment without requiring significant market analysis or timing decisions from the investor. This makes index funds an appealing choice for many individual and institutional investors looking for a more straightforward and cost-effective investment solution.