Which investment is generally designed to track a broad market index with passive management and typically lower fees?

• A. Index fund
• B. Actively managed mutual fund
• C. Fixed annuity
• D. Individual stock

Answer: (A)

An index fund is designed to mirror a broad market index by holding the same stocks in the same proportions, and it uses a passive management approach—no active stock picking or frequent trading. This simplicity keeps costs low, so expense ratios are typically much lower than those of actively managed funds. The goal is to match the market’s performance, not beat it, which is why fees remain minimal. In contrast, an actively managed mutual fund tries to outperform the market and usually charges higher fees; a fixed annuity is an insurance product with a guaranteed return and doesn’t track a market index; and an individual stock reflects the performance of a single company rather than a broad market.