An index mutual fund is a type of fund that invests all, or nearly all, of its total assets in securities comprising its underlying index. Index funds employ passive investment strategies, and therefore, tend to have low turnover and low expense ratios. Funds that implement indexing strategies require less portfolio management, which minimizes their operating fees. Index funds with low expense ratios are beneficial to long-term investors who seek to track indexes and minimize the gap between an index's performance and investors' returns.

Schwab S&P 500 Index Fund

The Schwab S&P 500 Index Fund is a mutual fund that tracks the total return of the S&P 500 Index and offers one of the lowest expense ratios in its category. This mutual fund has a portfolio turnover rate of 2%, and consequently, charges an annual net expense ratio of 0.09%; the category average is 1.08%.

Under normal market conditions, the Schwab S&P 500 Index Fund invests at least 80% of its total net assets in stocks comprising the S&P 500 Index and gives the same weight to each stock as its underlying index. One of the main benefits of holding this fund is its low tracking error. Based on trailing 15-year data, it has a beta of 1 against its underlying index. Moreover, the fund is accessible to the average retail trader and only requires an initial investment of $100.

Like all index funds, the Schwab S&P 500 Index Fund's performance is dictated by the general price and yield performance of its underlying index. Therefore, investors are unable to outperform the market when holding this fund. As of Sept. 30, 2015, based on trailing 15-year data, the fund has an alpha of -0.06, which indicates it underperformed the market by an average annual return of 0.06%.

Fidelity Spartan Total Market Index Fund Investor Class

The Fidelity Spartan Total Market Index Fund Investor Class is an index fund that seeks to track the performance of the Dow Jones U.S. Total Stock Market Index, its benchmark index. The fund's benchmark index is a market-cap-weighted index with all U.S. companies. As of Feb. 28, 2015, the fund has a portfolio turnover rate of 2%. Therefore, it charges a low net expense ratio of 0.1%.

Similarly to most low-cost index funds, the Fidelity Spartan Total Market Index Fund Investor Class has a low tracking error. As of Sept. 30, 2015, it has an average annual return of 6.29% since its inception on Nov. 5, 1997. Additionally, its benchmark index has an average annual return of 6.29% over the same period.

One of the main drawbacks to the fund is its minimum investment requirement of $2,500, which may be inaccessible to some investors. The fund implements an indexing strategy, and therefore, it is not able to hedge against risks or provide investors with downside protection.

Vanguard Total Bond Market Index Fund Investor Shares

The Vanguard Total Bond Market Index Fund Investor Shares is a low-cost mutual fund that provides investors with broad exposure to U.S. investment-grade bonds. The fund seeks to provide investment results corresponding to the Barclays U.S. Aggregate Float Adjusted Index. As of April 28, 2015, it charges an annual expense ratio of 0.2%, while the average expense ratio of mutual funds with similar holdings is 0.83%.

The Vanguard Total Bond Market Index Fund carries a low degree of credit risk since it primarily invests in U.S. government and investment-grade bonds. The fund tracks its benchmark index with a low degree of tracking error. As of Aug. 31, 2015, it has an average duration of 5.7 years, which indicates that if interest rates rise by 1%, the fund's share price declines by approximately 5.7%. Although the fund holds a diverse portfolio of bonds with many maturities, it carries a moderately high degree of interest rate risk.

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