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Best Index Funds UK in 2020

If you want to invest in a stock market index such as the FTSE 100 or Dow Jones, you can now do this in the UK at the click of a button. Here we discuss the best index tracker funds of 2020.
Kane Pepi
Author: Kane Pepi

Last Updated: October 14, 2020

Index tracker funds allow you to invest in the wider stock markets. That is to say, instead of picking individual shares, you will be investing in a group of companies from a specific exchange.

In the UK, for example, the FTSE 100 index fund tracks the 100 largest firms on the London Stock Exchange. In making an investment into an index tracker fund, you will be purchasing a diversified basket of stocks through a single trade.

In this guide, we explore the best index tracker funds of 2020. We also explain how index tracker funds work and what you need to do to make an investment in the UK today.

Table of Contents

    Top Index Funds UK

    Don’t have time to read our guide in full? Below you will find an overview of the best index funds of 2020.

    1. SPDR S&P 500 Index – Best All-Round Index With 90+ Year Track-Record
    2. iShares FTSE 100 UCITS ETF – Best Index Tracking Fund for UK Stocks
    3. FTSE All-World UCITS ETF – Best Index Tracking Fund for Global Diversification
    4. FTSE SmallCap Index – Best Index Tracking Fund for Small-to-Medium UK Companies
    5. SPDR Dow Jones Industrial Average – Best Index Tracking Fund for investing in the Dow

    Best Index Tracker Funds 2020 Reviewed

    There are hundreds of index tracker funds available in the UK investment scene. This covers a wide variety of indexes, including but not limited to, the FTSE 100, Dow Jones, NASDAQ 100, and S&P 500 Index. It doesn’t matter if you’re based in the UK and you wish to invest in an overseas index, as online stock trading platforms now allow you to do this at the click of a button.

    With so many index funds to choose from, below we discuss the best 5 to consider in 2020.

    1. SPDR S&P 500 Index – Best All-Round Index With 90+ Year Track-Record

    If you’re looking for an index tracker fund with a long-standing track record of making consistent gains for over 90 years, look no further than the Standard and Poor’s Depository Receipt (SPDR) S&P 500 Index. For those unaware, the S&P 500 Index is the most traded stock market index globally. It consists of 500 large-scale companies listed in the US. This includes both major exchanges – the New York Stock Exchange (NYSE) and the NASDAQ.

    This covers some of the most recognised international brands with multi-billion pound market capitalisations. Think along the lines of Apple, Amazon, Microsoft, Facebook, Johnson & Johnson, Alphabet, and Berkshire Hathaway. Crucially, by making a single investment, you will be adding 500 companies to your stock portfolio. This means that you will be diversifying across multiple sectors and industries from the comfort of your home.

    SPDR S&P 500 Index

    When it comes to returns, the S&P 500 Index has made average annualised gains of over 10% since its inception in 1926. Sure, the index has gone through ups and downs in-line with wider stock market recessions. However, the S&P 500 has always recovered – and then some. In fact, just a couple of weeks prior to writing this article, the index was at an all-time high. By investing in the S&P 500 Index, you will also be entitled to dividends.

    In terms of the specifics, SPDR will personally purchase each and every share that constituents the index. As and when constituents are replaced by new entrants to the index, SPDR will rebalance its portfolio to reflect the addition. If using a commission-free broker like eToro, you can actually invest in the SPDR S&P 500 Index without paying a single penny in fees. You simply need to meet a $50 minimum investment amount, which you can do via a debit/credit card.

    Your capital is at risk.

    2. iShares FTSE 100 UCITS ETF – Best Index Tracking Fund for UK Stocks

    If you have your heart set on the UK stock markets, then the best option on the table is that of the iShares FTSE 100 UCITS ETF. As the name suggests, this particular index tracker fund is focused on the FTSE 100. As we briefly covered earlier, the FTSE 100 is tasked with tracking the 100 largest firms listed on the London Stock Exchange.

    This includes heavyweight companies like AstraZeneca, British American Tobacco, HSBC, and GlaxoSmithKline.  As such, the iShares FTSE 100 UCITS ETF allows you to build a highly diversified portfolio of UK shares. Whether that’s banking, pharmaceuticals, healthcare, retail, or oil and gas – this index fund has you covered.

    iShares FTSE 100 UCITS ETF

    When you invest in his particular fund, you stand the chance of growing your wealth in two forms. Firstly, the ETF trades on a public exchange, meaning that the value of your investment will go up and down. This is based on the value of the shares held in the portfolio.

    In other words, if the FTSE 100 increases by 2% tomorrow, as will the value of your investment with iShares. Secondly, the iShares FTSE 100 UCITS ETF entitles you to dividends. The provider will distribute your share on a quarterly basis, which you can then re-invest into other assets.

    In terms of fees, this will depend on your choice of broker. Once again, FCA broker eToro allows you to invest in this UK index fund on a commission-free basis.

    Your capital is at risk.

    3. FTSE All-World UCITS ETF – Best Index Tracking Fund for Global Diversification

    If you’re looking to gain exposure to the global stock markets, as opposed to pigeon-holing yourself into a single exchange, then look no further than the FTSE All-World UCITS ETF. Make no mistake about it – this particular index tracking fund will provide you with a super-diversified portfolio on an international basis.

    In fact, you will be investing in just over 3,400 companies across 50 countries. Of this, 59% and 17% is split between companies operating in North America and Europe. The balance is then made up of firms operating in the pacific and emerging markets.

    FTSE All-World UCITS ETF

    Regarding the latter, this will enable you to invest in marketplaces that are experiencing high growth. This includes a small allocation of funds in the BRICS nations of Brazil, Russia, India, China, and South Africa. Much like the other index tracker funds on this list, the ETF trades on a public exchange.

    This means that your investment is highly liquid, as you can exit your position at any given time during standard market hours. You will also benefit from dividends. In terms of the provider, Vanguard is one of the largest investment funds in the world.

    Your capital is at risk.

    4. FTSE SmallCap Index – Best Index Tracking Fund for Small-to-Medium UK Companies

    If you’re looking to find that up-and-coming ‘hidden gem’ in the UK, then you might want to consider the FTSE SmallCap Index. In a nutshell, this particular index is tasked with tracking small-to-medium companies. More specifically, this typically includes the 351st to 619th largest companies listed on the London Stock Exchange, in terms of market capitalisation.

    You likely won’t have heard of many of the firms that constitute the index, as they typically meet one of two conditions. Firstly, many of the companies listed on this index tracker fund were recently launched. This means that their business models are likely unproven, which itself increases the risk vs reward ratio on your investment.

    FTSE SmallCap Index

    Alternatively, the index will also include companies that are somewhat established, albeit, they have small market capitalisations. Either way, you need to consider the heightened risk of investing in the FTSE Small Cap index. While some companies have the potential to move up the market capitalisation rankings, others will simply fade away.

    As a result, it’s best to limit your stakes on this one. Furthermore, although the index does entitle you to dividends if the respective company pays them, very few FTSE Small Cap do. As such, the main focus here is to increase your wealth through capital gains. As always, you can exit your position at any given time at your chosen broker.

    Your capital is at risk.

    5. SPDR Dow Jones Industrial Average – Best Index Tracking Fund for Investing in the Dow

    Even if you’re a complete novice in the world of stocks and shares, it is likely that you have heard of the Dow. For those unaware, the Dow Jones Industrial Average is one of the largest and most recognised stock market indexes. Although it only consists of 30 US-listed companies, it is one of the best ways to gauge the health of the wider economy.

    The key point with this index is that the 30 constituents are involved in various sectors and industries. For example, you have the likes of Verizon, Coca-Cola, Disney, Home Depot, ExxonMobil, and Intel. This means that you will diversify across food and beverage, oil, technology, telecommunications, and more.

    SPDR Dow Jones Industrial Average

    One of the most appealing aspects of the Dow Jones is that each and every constituent pays dividends. As a result, you stand the chance of making money on two fronts – regular income and capital gains. Interestingly, the Dow Jones index tracker weights its portfolio by share value, as opposed to the standard metric of market capitalisation.

    Nevertheless, investing in the Dow Jones 30 from the UK doesn’t have to cost you an arm and a leg. On the contrary, eToro allows you to do this on a commission-free basis. Once again, you simply need to meet a $50 minimum – which is about £160.

    Your capital is at risk.

    How do Index Funds Work?

    So now that you know the best index tracker funds of 2020, we now need to explain how this particular investment stream works. After all, you will be parting with your hard-earned money, so it’s important for you to at least have a grasp of the basics.

    Here’s what you need to know.

    Indexes Track Groups of Stocks

    Index tracking funds explainedIn a nutshell, an index is simply tasked with tracking the value of a group of stocks. In the vast majority of cases, this will consist of shares from a single stock exchange. For example, while the FTSE 100 tracks shares listed in the UK, the NASDAQ 100 tracks US firms.

    As such, this allows you to invest in the wider value of the stock markets, as opposed to picking a few individual companies. With that being said, some index tracker funds look to take diversification to the next level by tracking firms from multiple stock exchanges.

    The S&P 500 Index, for example, tracks companies listed on both the NYSE and NASDAQ. Then you have the likes of the FTSE All-World UCITS, which tracks almost 4,000 firms in 50 different countries.

    All in all – you have hundreds of index tracker funds to choose from. You’ll need to spend some time assessing which markets you want to gain exposure to, as well as the type of risks and rewards you are comfortable with.

    Index Fund ETFs Lead the Way

    Without a doubt, the easiest, cheapest, and most convenient way of investing in an index tracker fund in the UK is to opt for an ETF. In simple terms, ETFs are tasked with tracking a specific segment of the financial markets. This might include a basket that focuses on UK and US bonds, or companies involved in the oil and gas space. And of course, ETFs also track stock market indexes like the FTSE and Dow Jones.

    The process typically works like the below example:

    • You invest £1,000 into an ETF that tracks the FTSE 100 index
    • Your money is pooled together with thousands of other investors
    • The ETF provider personally buys shares in all companies that make up the FTSE 100
    • This means that your portfolio contains 100 shares
    • Your ownership of each share is depending on the weighting system used by the index (more on this later)

    Most index fund ETFs are listed on a public stock exchange. This means that it will have a ‘stock’ price that goes up and down. This is dependent on how the index itself performs. For example, if the Dow Jones ends the day 3% up, the value of your ETF investment will have increased by 3%.

    Weighting

    All index tracker funds are ‘weighted’. This refers to the proportion of funds that should be allocated to each individual stock. It goes without saying that the larger the company, the more weighting it will have in the index. After all, a firm with a £90 billion market capitalisation is going to have a much greater influence on the FTSE 100 than a company with a market capitalisation of just £4 billion.

    Let’s look at a basic example of how ‘index fund’ weighting works and how it can dictate how much money you are able to make.

    • At the time of writing, AstraZeneca has a market capitalisation of over £109 billion
    • On the FTSE 100 index, the firm has a weighting of 7.04%
    • If you invested £1,000 into an FTSE 100 index fund,  you would own £70.40 worth of AstraZeneca shares
    • If AstraZeneca paid an annual dividend yield of 4%, you would receive a payment of £40

    Now let’s look at an FTSE 100 company that has a much smaller influence on the index.

    • At the time of writing, JD Sports has a market capitalisation of over £7.6 billion
    • On the FTSE 100 index, the firm has a weighting of 0.17%
    • If you invested £1,000 into an FTSE 100 index fund,  you would own just £1.70 worth of JD Sports shares
    • If JD Sports paid an annual dividend yield of 10%, you would receive a payment of just £0.17!

    As you can see from the above, there is often a significant disparity in the weight contributions of an index.

    As we noted earlier, one of the most prominent exceptions to the market capitalisation weighing system is that of the Dow Jones. This is because the Dow gives preference to firms that have a higher stock price, even though they might be worth significantly less in term of market capitalisation.

    Dividends

    In the vast majority of cases, your chosen index fund ETF trading (or mutual fund ) will pay dividends. As we covered in the examples above, the amount that you receive will mirror the yield that the company pays. Your distribution will be determined by the weighting of the dividend-paying firm, and the size of your total investment.

    index fund dividends

    As you can imagine, the best index funds that consist of 100+ stocks will likely see dividends paid throughout the month. It would be highly inefficient and costly for the ETF provider to constantly forward payments every couple of days – especially when you consider the fund is likely to have thousands of individual investors.

    With this in mind, most index fund ETFs will distribute dividend payments on a quarterly basis. The dividends will be paid to the stock brokers that you used to invest in the index fund. When the funds arrive, you can then withdraw them to your bank account or even better – reinvest them to benefit from compound interest.

    Benefits of Investing in Index Funds in the UK

    There are several reasons why you might be better off investing in an index fund as opposed to selecting individual shares. This includes:

    No Stock Market Knowledge Required

    There is no denying that investing the stock markets as a newbie is challenging. You are required to pick and choose individual stocks that you think represent a viable long-term investment. In order to do this effectively, you need to perform heaps of in-depth research on the respective company.

    This should include looking at:

    • Financial reports
    • Quarterly earnings
    • Accounting ratios like debt-to-equity and earnings-per-share
    • Dividend yields

    Even if you are able to select stock on a DIY basis, you then need to keep tabs on your investment. After all, an unfavourable event, such as the company reported lower earnings than the market had anticipated, can result in a sudden selloff.

    At the other end of the spectrum, index-tracking funds require none of the above. On the contrary, you simply need to make an investment with your chosen ETF, and the provider will take care of the rest.

    This is because the ETF is simply tasked with tracking the index fund in question, so analysis, research, and speculation does not play a role.

    100% Passive

    Passive income is something desired by investors of all shapes and sizes. This is because you can simply sit back and allow your money to work for you. This sentiment could not be truer when it comes to index funds.

    Crucially, once you inject fund into your chosen fund, there is nothing else to do until you decide to exit your position.

    For example, let’s say a company replaces a constituent of the FTSE 100. The ETF provider would subsequently sell its shares in the departing firm and buy shares in its replacement.

    Instant Diversification

    Diversification is the golden rule of investing. The main concept is that by diversifying into multiple assets across multiple sectors and industries, you are reducing your long-term risks.

    This is because you will not be overly exposed to a single company of segment of financial markets. Ordinarily, creating a diversified portfolio of shares yourself can be both challenging and costly.

    However, by investing in a stock market index fund, you can achieve this goal at the click of a button. For example, by investing in the S&P 500 Index, you will be purchasing shares in 500 US companies from every sector imaginable.

    Low-Cost

    An additional benefit of investing in index tracker funds is that the costs involved are super-low. If you are able to invest directly with the ETF provider, then you will typically pay an annual maintenance fee of less than 1%.

    Although this is really competitive when you factor in what you are getting for your money, there is an even more cost-effective option that exists – using a commission-free broker.

    For example, eToro, which is now home to over 12 million traders, allows you to invest in index fund ETFs without paying a single penny in annual maintenance fees.

    Risks of Index Funds

    As great as the best index funds are for accessing the UK and international stock markets in a diversified manner, there are several risks and drawbacks that need to be considered.

    They include:

    Inflexible

    The primary aim of an index fund is to track the respective index like-for-like. That is to say, if the FTSE 100 increases by 0.5%, then the fund will look to replicate this as closely as possible. However, this inflexible approach to investing means that you might be missing out on more lucrative opportunities.

    No Bear-Market Strategy

    The global stock markets move in cycles and in most cases  – in tandem with one another. For example, as per the coronavirus pandemic, the US stock markets lost in the region of 30% in the space of just a few weeks.

    index fund bear market

    However, not all firms lose money during a mass sell-off, with the likes of Amazon leading the way. However, UK index funds will not add or remove stocks based on market conditions, meaning that you are not protected from a wider economic downfall. Instead, the index fund will continue to track its market constituents.

    You Can Lose Money

    As the case with all investment decisions, there is no guarantee that you will make money from an index fund. Although most indexes have increased in value over the course of time, your ability to make a profit is often based on market timing.

    For example:

    • Let’s suppose that you invested £5,000 into the FTSE 100 index at the start of 2020.
    • In doing so, you would have invested at 7,235 points on January 1st.
    • Fast-forward to September 9th, and FTSE 100 is valued at 5,962 points.
    • If you sold your index investment at this price, you would be looking at a loss of 17.5% – or £875.

    The key point here is that index fund investments should be viewed as a long-term investment. In fact, the longer the better. This will allow you to ride out the ups and downs of market waves – especially when it comes to recessions (like the one we saw in 2008).

    How to Choose the Best Investment Fund For You

    While we have discussed just 5 index tracker funds available to UK investors, there are actually hundreds to choose from. As a first-timer, this can make it difficult to know which index fund is right for you.

    As such, we would suggest making the following considerations to help clear the mist.

    1. Are you Interested in UK funds, International funds, or Both?

    First and foremost, you need to decide which marketplace you wish to gain exposure to. For example, if you want to focus on UK companies, then you will be best suited to the FTSE 100. If you are looking to invest in US-based firms, then you’ll want to look at the likes of the S&P 500, NASDAQ 100, or Dow Jones.

    Additionally, there are heaps of ETFs that cover both the UK and international stocks, so spend some time thinking about what your goals are.

    2. Do you Want to Invest in Large or Small Companies?

    You then need to assess what types of companies you wish to invest in. For example, if you want to buy shares of the largest and most established UK firms, then you’ll want to focus on the FTSE 100. In doing so, you’ll be investing in multi-billion pound companies such as BP, BT, British American Tobacco, and AstraZeneca.

    At the other end of the spectrum, some investors like to target smaller companies. If this sounds like you, then the FTSE SmallCap or Russell 2000 Indexes might be more up your street.

    3. How Much Risk do you Want to Take?

    Investment decisions should always take into account the age-old ‘risk vs reward’ conundrum. That is to say, the more risk that you take with an investment, the more returns you should expect. This sentiment is especially true in the index tracking fund arena.

    For example, if you are looking for an index fund that attracts the lowest risk, you might want to consider the S&P 500. This is because the index consists of 500 large-scale US companies that must meet a set of minimum requirements.

    S&P 500 Index

    For example, each firm must have a market capitalisation of at least $8.2 billion, have 50% or more of its shares in circulation, and have reported four consecutive quarterly earnings that are positive. As such, you effectively investing in the backbone of the US economy.

    On the flip side, if you are looking to take greater risks with the view of generating larger profits, there are many index tracker funds that can facilitate this goal. In particular, there are funds that exclusively target companies based in the emerging markets, such as Russia, South Africa, Kenya, and India.

    Best Index Fund Brokers

    So now that you know the ins and outs of how the index funds work, we now need to discuss brokers. This is because online brokers are highly conducive for investing in index funds from the comfort of your home. For example, it often takes just minutes to open an account, you can instantly deposit funds with a UK debit/credit card or e-wallet-, and fees are super-low.

    With this in mind, below you will find a selection of brokers that allow you to invest in the best UK index funds of 2020.

    1. eToro - World Leading Social Trading Platform with 0% Commission

    We have made reference to eToro several times in this index fund guide, and for good reason. Firstly, the FCA regulated broker - which is now home to over 12 million investors, offers a highly extensive platform that consists of thousands of assets. In particular, this includes over 150+ ETFs, many of which track the best index funds.

    In fact, most of the index funds that we have discussed on this page, whether that's the FTSE, Dow Jones, S&P 500, or China 25, are offered by eToro. Best of all, the platform charges no commission fee whatsoever. There are no monthly or annual maintenance fees either. This is something that you would ordinarily need to pay when going direct with the ETF or mutual fund provider.

    You will also benefit from low account minimums at eToro. For example, you are required to deposit just $200, which is about £160. You can invest just $50 into your chosen index fund ETF, which is great for those of you on a budget. If you also choose to invest in individual stocks, you'll have access to over 1,700+ equities from 17 UK and international markets.

    Any dividends that you are entitled from your index fund investment will typically be distributed by the ETF provider on a quarterly basis. This will be reflected in your eToro cash account. In terms of payments, eToro supports a wealth of UK deposit methods. This includes debit/credit cards, e-wallets like Paypal and Skrill, and a bank transfer. On top of its FCA license, eToro is partnered with the FSCS. This covers your investment up to the fist £85,000.

    Our Rating

    • Trade assets commission-free
    • Regulated in the UK by FCA
    • Social trading tools
    • User-friendly trading platform
    • 0.5% currency conversion fee on deposits
    75% of retail investor accounts lose money when trading CFDs with this provider.

    2. Plus500 - Low Cost Index Funds CFD Broker

    Plus500 offers a completely different approach to investing in index funds in the UK. This is because the FCA-regulator specialises in CFDs. As such, you will be trading your chosen index, as opposed to making a direct investment. Although you won't own the underlying shares, you will benefit from a much broader range of trading options. For example, Plus500 allows you to profit from both rising and falling markets.

    That is to say, if you think that the short-term value of the FTSE 100 is likely to go up, you would simply place a buy order. Similarly, if you think the FTSE 100 will drop in value, you'll need to place a sell order. This isn't something that you can do when investing in an index fund in the traditional sense. Furthermore, and perhaps most importantly, Plus500 allows you to trade index fund CFDs with leverage.

    As per the UK and European limits, this allows you to trade major indexes with leverage of up to 1:20. This means that a £200 account balance would permit a maximum trade size of £4,000. In terms of what index fund CFDs you can trade, Plus500 offers an extensive list of markets. Major indexes include the FTSE 100, Dow Jones 30, Europe 50, and S&P 500.

    If you want to trade less liquid marketplace, you'll also have access to indexes based in Italy, France, Hong Kong, Greece, and more. Regardless of your chosen index CFD, all financial instruments at Plus500 can be traded commission-free. If you like the sound of short-term trading via CFDs, Plus500 allows you to get started with a minimum deposit of just £100. Debit/credit cards, bank transfers, and Paypal are supported.

    Our Rating

    • No withdrawal fees
    • 0% trading commission
    • FCA regulated
    • No educational material
    80.5% of retail investor accounts lose money when trading CFDs with this provider.

    3. IG - Established Broker With 17,000+ Markets

    If you're looking for a super-wide range of index funds and markets to choose from, it might be worth considering IG. This regulated broker offers several trading options. Firstly, you'll have access to over 10,000+ stocks, ETFs, and investment trusts. This includes heaps of ETFs that track index funds.

    You will pay £8 per ETF investment, which is reduced to £3 if you traded more than three times in the previous month. You can also invest in ETF index funds through a Stocks and Shares ISA at IG. This means that you can avoid capital gains tax on the first £20,000.

    Your tax-free allowance resets every year. The other option that you have at IG is to trade index fund CFDs. Much like Plus500, this allows you to trade major index funds in the UK with leverage of up to 1:20. You will also have the ability to place short-sell orders, which is great if you think a particular index will go down in value.

    When it comes to the fundamentals, IG is regulated by several tier-one bodies - including the FCA. You will need to deposit and invest at least £250. Debit and credit card payments are credited instantly, so it takes just minutes to get set up with the broker. You can also deposit funds via a UK bank transfer, but this takes a few days to process.

    Our Rating

    • Spreads from 0.6 pips
    • Supports MT4 trading platform
    • Excellent research department
    • 1% fee when using Visa and 0.5% via MasterCard
    • Spreads on some crypto pairs are somewhat expensive
    There is no guarantee you will make money with this provider.

    4. Vanguard - Invest in Index Tracking Funds Direct With the Provider

    Vanguard is one of the largest and most trusted financial institutions globally. Among a range of other investment streams, Vanguard offers heaps of index funds from various financial sectors. On top of stocks, this also covers bonds and sector-specific funds.

    If you choose to go direct with Vanguard index funds in the UK, there are several metrics that you need to take into account. Firstly, you will always need to pay an annual maintenance fee. This will vary depending on the specific index-tracking fund that you are interested in.

    For example, the FTSE All-Share Index will cost you 0.22% annually. In terms of account minimums, you typically need to invest at least £500 into your chosen fund. You can, however, also elect to invest a minimum of £100 per month via direct debit.

    Our Rating

    • Invest directly with a leading index fund provider
    • Annual fees are very low
    • Choose from a one-off investment or monthly payments
    • Some Vanguard index funds can be invested in commission-free with a UK broker
    • £500 minimum is on the high side
    There is no guarantee you will make money with this provider.

    5. Hargreaves Lansdown - Huge Variety of Index Tracker Funds

    Hargreaves Lansdown has an excellent reputation in the UK brokerage scene. It is often the go-to broker for first-timers, as the platform is super-easy to use. Hargreaves Lansdown is also renowned for offering an extensive library of research materials. This includes in-depth market insights on the wider stock markets - which includes index funds.

    Hargreaves Lansdown is also a great choice is you are looking for variety. This is because you will have access to dozens of index-tracking funds. This includes popular marketplaces in the UK and US, as well as the emerging nations. In most cases, you will not pay any fees to invest for investing in Hargreaves Lansdown index funds.

    You will, however, need to pay an annual maintenance fee. Much like Vanguard, the specific fee will depend on what fund you wish to target. For example, while the iShares Japan Equity Index costs just 0.08% per year, the iShares Emerging Markets Equity is much higher at 0.6%. Most index-tracking funds at Hargreaves Lansdown can be invested in from just £100.

    You also have the option of setting up a direct debit for regular investing, which starts at just £25 per month. If you want to invest a lump sum, Hargreaves supports debit cards and bank transfers. Either way, there are no fees to deposit or withdraw funds. The platform is, of course, regulated by the FCA.

    • Trusted name in the UK brokerage scene
    • Heaps of index funds, stocks, ETFs, and more
    • Invest from just £100
    • More expensive than other UK brokers in the space
    Your capital is at risk.

    How to Invest in Index Funds UK

    Once you have selected an online broker or fund provider that you like the look of, you then need to go through the online investment process. Depending on which platform you sign up with – registering, making a deposit, and allocating funds to an index tracker can take just minutes.

    With that said, the walkthrough below is based on FCA broker eToro. This is because the platform allows you to invest in index tracker funds without paying any commission, and it’s highly suitable for newbie traders.

    Step 1: Register an Account

    Head over to the eToro website and open an account. You’ll be asked to enter some personal information, contact details, and national insurance number. You’ll also need to choose a username and a strong password.

    eToro sign up

    As eToro is regulated by the FCA, it is also required to verify your identity. You can do this easily by uploading a copy of your passport or driver’s license. You’ll also need to upload a document that validates your home address, which can be either a utility bill or bank account statement dated in the past three months.

    Step 2: Deposit Funds

    You will now need to meet a minimum deposit of $200 (about £160).

    Supported deposit methods include:

    • Debit/credit cards
    • Bank transfer
    • Paypal
    • Skrill
    • Neteller

    It’s best to avoid a bank transfer, as this will take a few days to process. All other payment methods are credited instantly, meaning that you can invest in your chosen index fund straight away.

    Step 3: Invest in an Index Tracker Fund

    Click on the ‘Trade Markets’ button, followed by ‘ETFs’. You will then be able to view the index fund ETFs supported by eToro. If like us you know which index fund you want to invest in, enter the name of the ETF into the search box at the top of the screen.

    Invest in index fund ETFs at eToro

    Then, click on the trade button.

    Invest in index fund ETFs at eToro

    Finally, you need to enter the amount that you wish to invest. This needs to be at least $50.

    Invest in index fund ETFs at eToro

    Once your order is placed, it will remain active until you decide to cash it out.

    Conclusion

    Index tracker funds offer many benefits to investors. Not only do you have the ability to invest in the wider stock markets, but you can create a highly diversified portfolio through a single trade. There is no requirement to lift a finger once the investment is made, as the ETF or mutual fund provider will take care of the rest.

    Investing in an index tracker fund is also a great option for those of you with little to no experience of how the financial markets work. This is because you will not be required to pick and choose individual stocks.

    If you’re keen to get started with an index fund investment right now, FCA broker eToro allows you to do this on a commission-free basis. There are no annual maintenance fees, you can instantly deposit funds with a debit/credit card or e-wallet, and the minimum investment to access index tracker funds is just $50!

    eToro: Invest with Index Funds with 0% Commission

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    • Invest in index funds with no commission
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    75% of retail investor accounts lose money when trading CFDs with this provider.

    FAQs

    What are index funds?

    Index funds are tasked with tracking a stock market index. This might include the FTSE 100, FTSE All-Share, NASDAQ 100, or Dow Jones 30.

    When is the best time to buy index funds?

    UK index funds should always be viewed as a long-term investment. This will allow you to ride the ups and downs of stock market trends. As such, now is as good a time as any to consider an index fund that meets your investing goals.

    Which Vanguard index funds are the best?

    There is no one-size-fits-all answer to this question, as it all depends on your personal investment objectives. After all, Vanguard offers dozens of index funds - each of which will come with varying risks and rewards. Make sure you do your research to help find the best Vanguard index funds for you.

    What are reasonable annual management fees for index funds?

    If you go direct with the index fund provider (such as Vanguard or iShares), then you should expect to pay no more than 0.5% per year. However, if using a commission-free broker like eToro, you won't be charged any annual fees at all.

    What index fund tracks the UK stock market?

    The primary UK index is that of the FTSE 100. This tracks the largest 100 companies listed on the London Stock Exchange. If this is what you are after, there are many ETF and mutual fund providers that track the FTSE.

    Do index funds pay dividends?

    Yes, in the vast majority of cases you will be entitled to dividends. Your chosen provider will typically distribute a payment every three months.

    What is the minimum amount you can invest in an index fund?

    This will depend on the broker of index provider that you register with. In the case of eToro, this stands at a minimum of $50 (about £40) per fund. Hargreaves Lansdown stands at a minimum lump sum £100 or £25 per month.

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    All trading carries risk. Views expressed are those of the writers only. Past performance is no guarantee of future results. The opinions expressed in this Site do not constitute investment advice and independent financial advice should be sought where appropriate. This website is free for you to use but we may receive commission from the companies we feature on this site.
    Kane Pepi

    Kane holds academic qualifications in the finance and financial investigation fields. With a passion for all-things finance, he currently writes for a number of online publications.

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    eToro: Invest in Index Funds With 0% Commission Now

    eToro: Invest in Index Funds With 0% Commission Now

    eToro: Invest in Index Funds With 0% Commission Now

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    eToro: Invest in Index Funds With 0% Commission Now
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