An index fund is a Mutual Fund scheme that mirrors the performance of the underlying index. For example if there is an index fund based on the NSE Nifty Index, the investments done by the fund manager would be in exactly the same ratio as the % weightage of stocks in the NSE Nifty Index. He would invest in only those 50 stocks. Hence the performance of the mutual fund scheme would be an exact replica of how the NSE Nifty index performs less the expense cost and tracking error of the fund.
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