How to Invest in a Stock Index Fund

Stock index funds aim to match the performance of a specific market index by investing in the same securities.

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A stock index fund is a mutual fund that mimics the performance of the Standard and Poor 500 or a similar index. The fund manager simply buys the stocks that make up the chosen index and holds them. This eliminates the need for a research staff and cuts down on the fund's taxable gains. Most stock index funds pass these savings onto investors in the form of lower fees, but this is not always the case. Be sure to check the fees a particular fund charges before you decide where to invest your money.

Step 1

Visit your favorite market research site to investigate the index funds that may meet your needs. Filter your search by type of fund, performance, Morningstar rating and expense ratio. Narrow down your list to three to five funds that you will be researching further.

Step 2

Read each fund's prospectus to make sure its investment strategies are in line with your financial goals. You can request a prospectus from the fund company's website. Pay close attention to the fund's expense ratio. Expense ratio is the percentage of assets the fund must devote to management expenses. The higher the expense ratio, the more the fund's yield will lag behind its targeted index.

Step 3

Open an investment account with the broker of your choice. Some index funds also allow investors to purchase shares without the assistance of a broker. In this case, contact the mutual fund directly to open an account.

Step 4

Make your initial deposit to the account according to your broker or mutual fund's requirements. Some funds employ a minimum deposit amount to cut down on their transaction processing costs. If you have a brokerage account, you may also have to send instructions to buy shares of your desired stock index fund. Without these instructions, your deposit may sit unallocated in a money market account.

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About the Author

Denise Sullivan has been writing professionally for more than five years after a long career in business. She has been published on Yahoo! Voices and other publications. Her areas of expertise are business, law, gaming, home renovations, gardening, sports and exercise.

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