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Index funds, which are sometimes referred to as index trackers, aim to follow or mimic the performance of a specific index; the value of an index fund will typically go up or down as the index goes up or down. Index funds are generally sold in the form of mutual funds or exchange-traded funds (ETFs). Tracking the performance of an index is an example of a passive investment strategy. The holdings of a fund that use a passive strategy are only adjusted if there is a change in the benchmark or investment model.

On the other hand, active strategies usually involve a portfolio manager buying and selling investments to meet a specific return target, or to outperform the return of the overall market or another identified benchmark, this is generally known as a managed or active fund.

Learn more about how indices and index funds work  on GetSmarterAboutMoney.ca. Speak to a registered financial representative for advice that fits your personal and financial situation.