Index fund — what it is and how it works
An index fund is a cheap way to invest passively. Learn the definition, advantages, types and how to start investing in index funds in Poland.
Definition
Index fund is an investment fund whose goal is to replicate the performance of a specific stock market index (e.g., WIG20, S&P 500, MSCI World). Instead of trying to "beat the market" (like active funds), an index fund simply copies it.
How an index fund works
The fund buys stocks (or bonds) in the same proportions as they appear in the index. If Apple constitutes 7% of the S&P 500 index, the index fund holds 7% of its portfolio in Apple.
There's no manager making subjective decisions. An algorithm automatically maintains the portfolio composition according to the index.
Index fund vs ETF
| Feature | Index fund | ETF |
|---|---|---|
| Listed on exchange | No | Yes |
| Buy/sell | Once daily (NAV) | During trading hours |
| Min. payment | Often 100–1,000 PLN | Price of 1 unit (~50–400 PLN) |
| Costs (TER) | 0.1–0.5% | 0.07–0.25% |
| Availability in Poland | Limited | Wide (via WSE and foreign) |
In practice, ETF is an index fund listed on the stock exchange. In Poland, the term "index fund" often covers both.
Why index funds win
SPIVA (S&P Indices Versus Active) studies show that after 15 years, 85–95% of actively managed funds lose to their benchmark. Main reason: high management fees (1.5–3% annually in Poland) eat up profits.
An index fund with 0.1% fee vs active fund with 2% fee — with the same gross return rate, the difference after 30 years is several dozen percent of portfolio value.
Popular index funds available in Poland
| Fund/ETF | Index | TER | Where to buy |
|---|---|---|---|
| VWRA (Vanguard FTSE All-World) | Global | 0.22% | XTB, Bossa |
| CSPX (iShares Core S&P 500) | S&P 500 | 0.07% | XTB, mBank |
| EUNL (iShares MSCI World) | Developed markets | 0.20% | XTB, Bossa |
| Beta ETF WIG20 | WIG20 | 0.45% | WSE |
| Beta ETF mWIG40 | mWIG40 | 0.80% | WSE |
How Freenance can help
Freenance automatically tracks the value of your index funds:
- Portfolio value updated daily
- Rate of return including deposits and withdrawals (TWR and MWR)
- Asset allocation — what percentage of the portfolio are index funds
- FIRE projection based on historical rates of return
Want full control over your finances?
Try Freenance for free