What are index funds designed to track?

Index funds are specifically designed to track the performance of a particular index, such as the S&P 500 or the Dow Jones Industrial Average. By doing so, they aim to replicate the returns of that index, which consists of a predetermined collection of securities. The fundamental idea behind index funds is to provide investors with broad market exposure while minimizing management costs and fees, as these funds typically do not require active management.

Investors choose index funds because they are a passive investment strategy that allows them to participate in the overall market performance without the need for individual stock picking. This strategy generally leads to a lower expense ratio compared to actively managed funds, making them appealing for long-term growth.

The other options address different types of financial instruments or strategies but do not accurately describe the purpose of index funds. For example, performance of specific stocks pertains to actively managed funds or individual stock investments, while bonds and commodities relate to different asset classes that may not be represented in an index fund. Lastly, fluctuations in mutual fund prices refer to the value changes of actively managed mutual funds rather than the tracking objective of index funds.