Introduction to Financial Markets (405) — CBSE Class 10 board question

An Index Fund is a type of mutual fund or investment fund designed to replicate the performance of a specific stock market index, such as the Nifty. Since the Nifty is a scientifically developed 50-stock index reflecting the market movement of Indian markets and is considered the barometer of Indian markets, an index fund simply buys the same stocks in the same proportion as the index. It is a passive investment strategy — the fund manager does not actively pick stocks but merely tracks the index. This results in lower management costs compared to actively managed funds.

Source: Chapter 8, Section 8.2 — Index

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• The question is a short-answer definition-type question (likely 2–3 marks).
• Examiners expect: (1) definition linking it to a market index, (2) mention of passive/replication strategy, (3) brief benefit (low cost). Reference to Nifty from the passage strengthens the answer.
• Avoid writing a long essay — 3–4 crisp sentences are sufficient.