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How to invest in index funds in Australia

Learn about index funds, how you can invest in them and why they're so popular.

Invest in index funds through a broker Compare online brokers

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How to start investing

  1. Do your research and select your index fund.
  2. If your index fund is an ETF, you can invest in it through an online broker (see below).
  3. If your index fund is an unlisted managed fund, apply to invest through the fund manager.

If you already understand what index funds are and want to start investing, you can do so through a fund manager, a full-service broker or an online share trading platform. One of the easiest and cheapest ways to access index funds is via exchange traded funds (ETFs) traded on the Australian Securities Exchange (ASX). It is worth noting that you can buy more than just an Australian index tracking fund on the ASX. You can also find funds that track most of the world.

The following table shows some of the share trading platforms you can use to access index funds.

Compare online trading platforms to access index funds

1 - 11 of 11
Name Product Brokerage on AU ETFs Inactivity fee Markets
eToro (global stocks)
US$10 per month if there’s been no login for 12 months
Global shares, US shares, ETFs
Zero brokerage share trading on US, Hong Kong and European stocks with trades as low as $50.
Note: This broker offers CFDs which are volatile investment products and most clients lose money trading CFDs with this provider.
Join the world’s biggest social trading network when you trade stocks, commodities and currencies from the one account.
ThinkMarkets Share Trading
ASX shares
Exclusive: Sign up through Finder and get 3 months of free trading up to 50 trades. Offer available to new customers only.
Following your first three months, enjoy $8 flat fee CHESS sponsored brokerage as well as free live stock data all from the convenience of an easy-to-use mobile app
IG Share Trading
$5 – 8
ASX shares, US shares, UK shares, ETFs, and more
Exclusive: Finder customers who apply for a share trading account in June will be able to trade Aussie shares from $2.50 commission until the end of August. T&Cs apply.
Enjoy some of the lowest brokerage fees on the market when trading Australian shares, international shares, plus get access to 24-hour customer support.
Tiger Brokers
Tiger Brokers
ASX shares, Global shares, Options trading, US shares, ETFs
Exclusive to Finder: Sign up to Tiger through Finder and on completion of your first deposit of any amount or transfer of shares receive 4 extra free grab shares. T&Cs apply.
Get started with $0 brokerage on ASX and US stocks for the first 3 months upon completion of your first qualifying deposit. Also receive a free Apple share if you deposit $3,000 or more.
SelfWealth (Basic account)
ASX shares, US shares
Trade ASX and US shares for a flat fee of $9.50, regardless of the trade size.
New customers receive free access to Community Insights with SelfWealth Premium for the first 90 days. Follow other investors and benchmark your portfolio performance.
CMC Markets Invest
ASX shares, Global shares, mFunds, ETFs
$0 brokerage on global shares including US, UK and Japan markets.
Trade up to 35,000 products, including shares, ETFs and managed funds, plus access up to 15 major global and Australian stock exchanges. Plus, buy Aussie shares for $0 brokerage up to $1,000. (Limited to one buy order per stock per trading day).
Bendigo Invest Direct
ASX shares, Global shares, Options trading, mFunds, ETFs, Warrants
Gain access to 12 markets from one account with Bendigo.
Invest in Australian shares and access major international markets through a trusted local brand. Plus, fine tune your investment knowledge with Bendigo’s advanced research and analysis tools.
GO Markets Share Trading
ASX shares, Forex, CFDs, ETFs
Zero Brokerage on your next 50 trades!
Simply transfer an existing HIN before 30 June and pay no fees on your next 50 transactions. Alternatively, transfer your existing shares and receive 5 transactions at zero cost for each shareholding transferred, once again up to 50 free trades. T & Cs apply
Saxo Capital Markets (Classic account)
ASX shares, Global shares, ETFs
Access 6,400 ETFs over 30 exchanges worldwide
Low fees for Australian and global ETF investing, no inactivity fees and foreign currency accounts available.
Bell Direct Share Trading
ASX shares, mFunds, ETFs
Get $300 free brokerage until 30 June when you move to Bell Direct. T&Cs apply.
Bell Direct offers a one-second placement guarantee on market-to-limit ASX orders or your trade is free, plus enjoy extensive free research reports from top financial experts.
Superhero share trading
ASX shares, US shares, ETFs
Sign up & fund your account with A$100 or more and receive US$10 of Tesla stocks on Superhero. T&Cs apply.
Enjoy $0 brokerage on US stocks and buying ETFs as well as a flat $5 fee to trade Australian shares.

Compare up to 4 providers

Important: Share trading can be financially risky and the value of your investment can go down as well as up. Standard brokerage is the cost to purchase $1,000 or less of equities without any qualifications or special eligibility. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.

What are index funds?

An index fund is a portfolio of stocks and sometimes other assets such as gold or cash. The idea of an investment fund is that instead of buying shares in 1 company or 1 asset, you can invest in a bundle of them.

With regular (non-index) investment funds, fund managers maximise profits by buying and selling assets based on market predictions. This difficult feat is known as "active" management. On the other hand, an index fund mimics a financial index, requiring little intervention from its fund managers.

The index fund approach can be used by all kinds of investment funds, including exchange traded funds (ETFs), managed funds and even super funds.

In Australia, you'll often hear people refer to index funds as ETFs or vice versa. This is somewhat misleading because not all ETFs are index funds (although most in Australia are) and not all index funds are ETFs.

What is a stock market index?

A market index tracks the performance of certain stocks or groups.

Most countries will have their own individual stock market index that allows investors to get a snapshot of how the market in a country's exchange is performing.

Take Australia for example. Australia's most well-known index, the ASX 200, consists of the largest 200 companies on our stock exchange. The Wall Street alternative is the S&P 500 index, which includes the top 500 listed companies in the US. An index can also be based on industries. The Nasdaq 100 is an example of this, as it tracks the 100 largest tech companies listed on the exchange.

You'll notice these indices are often cited in the media because it is an easy way to quote how a market as a whole is performing. They rise and fall depending on a range of economic indicators and company news. While not directly correlated, a healthy economy certainly has an impact on the share market. After all, the more confident investors feel about the future of a country, the more likely they are to buy companies that are exposed to its economic conditions. If trade tensions increase between countries, stock market indices usually fall as investors become nervous.

How do index funds work?

Index funds hold a selection of stocks that make up an index. For example, Vanguard's Australian Shares Index Fund tracks the ASX 300 index, a collection of Australia's largest 300 companies.

If a company leaves an index, the fund manager sells its shares and replaces them with new stocks. For this reason, index funds are considered a comparatively safe alternative to directly buying shares in a company. Because these kinds of funds require minimal management, it's known as "passive" investing.

It's important to note that while index funds are sometimes called "mutual funds" overseas, within Australia, the term "index fund" more often refers to exchange traded funds (ETFs).

What is an ETF?

An ETF is a basket of securities listed on a stock market, such as the ASX. ETFs are typically "passive" investments that track an asset or index in Australia, but this isn't always the case. You can read more about these funds in our informational ETF guide.

Confused about the terminology? You're not alone. These terms are changing all the time and vary across different borders.

Despite the popularity of traditional managed (sometimes called mutual) index funds in the US and other countries, few such options are available in Australia. Instead, many Australian investors use ETFs to track indices as they work in much the same way but are easier to access and have a lower minimum cost requirement.

Zero brokerage share trading on US, Hong Kong and European stocks with trades as low as $50.

Note: This broker offers CFDs which are volatile investment products and most clients lose money trading CFDs with this provider.

Join the world’s biggest social trading network when you trade stocks, commodities and currencies from the one account.

What is the difference between an index fund and an ETF

The biggest difference between an ETF and an index fund is that an ETF can be traded like a stock, whereas an index fund runs a little differently. An index fund is bought and sold only for the price set at the end of the trading day.

However, this difference should matter little to long-term investors as intraday trading shouldn't be a big deal. After all, whether you buy an index at 12pm or 4pm, it will have a marginal difference on your returns in a decade.

Other noticeable differences include the following:

  • ETFs are listed on a stock exchange. ETFs are traded like shares on the stock exchange while index funds are unlisted managed funds.
  • They're priced differently. The price that you pay for an ETF is its market value, depending on its performance on the stock market. The price that you might buy or sell into an index fund is the net asset value of its underlying securities.
  • Buying and selling. ETFs can be bought or sold at any time during a trading day, whereas managed funds are only priced at the end of the day.
  • ETFs have a lower minimum investment. Index funds typically require a higher minimum investment of more than $5,000. You can purchase many ETFs for less than $100.
  • Index funds don't charge a transaction fee. There's almost always a brokerage fee involved when buying or selling an ETF, but index funds tend to skip this cost. This means that a managed index fund can be a good option for investors looking to frequently add small amounts to their fund over time.
  • ETFs have lower fees. On the other hand, taxation and management fees tend to be lower for ETFs than for traditional index funds.
  • ETFs can be traded like stocks. Another major difference between ETFs and index funds is that ETFs can be traded throughout the day as stocks because it’s listed on an exchange, while an index fund can be sold for the price set at the end of the trading day.

Why invest in an index fund?

Index funds are proven to outperform many other kinds of investments.

In 2008, one of the world's most successful investors, Warren Buffet, made a $1 million bet that a bundle of actively managed funds would be worse off than the S&P 500 over 10 years. He argued that if a fund mimicked a major index, it would deliver better returns than a fund actively managed by professionals. Buffett's ultimately successful wager showed that net of fees an S&P 500 index would outperform a hand-picked portfolio.

The point is that although major indices fluctuate from year to year, they usually rise over a long time. For example, the ASX 200 index fell by more than 15% during the 2008 global financial crisis. But even if you had invested in the index fund just before that, you'd still be in a better financial position today than if you'd not invested at all.

This is due to diversification.

One of the key benefits of index funds is they allow for instant diversification as you'll own a basket of stocks in just one transaction. As such, you will take on less risk than owning one share while benefiting should the market as a whole increase.

Another key benefit of index funds is they allow you to invest overseas. Instead of having to work out how markets work and keep up with foreign news, you could simply buy an index fund that tracks overseas markets.

What are the benefits of investing in an index fund?

  • Index funds cost less. Passive funds require less legwork, so they typically charge lower fees than actively managed funds. In managed funds, high fees can easily eat into any returns gained by the broker.
  • They can achieve higher returns. Indices are proven to frequently beat the average returns achieved by fund managers over many years. Coupled with lower fees, they make good investing sense.
  • Ease of trade. Many ETFs listed on the ASX are index funds, which are easily accessible on brokerage platforms.
  • It can diversify your portfolio. Investing in an index fund offers access to various companies from different sectors.
  • They're relatively safe. Index funds are considered a safer alternative to direct stock market investing because indices are generally less volatile than individual stocks.

Of course, no investment is ever 100% "safe" and you should always seek professional advice before making any investment decision.

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What are the risks of index funds?

  • You could lose your money. Like any investment, you take the bad with the good. Your investment delivers profitable returns when an index does well, but when an index drops, so does your investment.
  • It's not a short-term plan. Passive funds perform best over many years. If you invest in an index fund but find you need the money 6 months later, there's a good chance you'll have less than you started with.
  • Not all assets are safe. Although many index funds track relatively safe major indices, technically, any pool of assets can be bundled into a fund. Some index funds track volatile global markets, such as oil, while others bundle in riskier investment assets. Always do your homework.
  • Not all ETFs are index funds. ETFs come in all shapes and sizes. Not all are passively managed – some are highly complex and risky.

Australian index funds

There are more than 100 index funds to choose from in Australia and most of these aren't labelled "index funds", so it can be tricky to source a full list. Below are some of the most well-known index funds available in Australia.

You can also check out the best performing ETFs of 2022.

SPDR S&P 500 ETF TrustS&P 500ETF
iShares Global 100 ETFS&P Global 100ETF
Vanguard Australian Shares Index ETFS&P/ASX 300ETF
Vanguard Index Australian FundS&P/ASX 300Unlisted
iShares North America Index FundMSCI North AmericaUnlisted

Steps to invest in an index fund

Most major fund managers offer access to a limited pool of index funds, though ETFs are the more readily accessible option within Australia.

You can purchase traditional index funds directly through their associated fund providers, such as Vanguard Investments or BlackRock. You can purchase ETFs with any regular stockbroking account.

Whether you want to invest in an ETF or an unlisted index fund, these are the steps you need to follow:

1. Consider your strategy

Ask yourself what you want to achieve through this investment. Consider your time frame and how much risk you're willing to take on. Will you need to withdraw the funds in a year or can they sit for 10 years?

2. Assess your options

Compare funds online to find a product that matches your goals. Consider the risks, the fund's performance, the brokerage fees and other transaction costs.

Key things to take into account when deciding on an index fund include the following:

  • Management
  • Brokerage fees
  • Transaction fees
  • The fund's performance over the last 3, 5 and 10 years
  • Whether the fund's assets are safe or contain some volatility
  • The minimum investment amount and how often you plan to transact with the fund

3. Sign up through a fund manager or online broker

Once you've found the right product, you'll need to work out the best way to access it.

You can access index funds through their fund providers, such as BlackRock or Vanguard Investments.

  • When applying directly to a fund manager, you'll need to fill out an application form, provide proof of address, ID and tax file number. This will need to be posted or emailed back with a cheque or proof of transaction.
  • Financial planners can also apply for an index fund on your behalf.

Some online brokers, such as CMC Markets, have access to managed funds through a settlement service, such as the ASX's new mFund, but there are no index funds accessible via the mFund service at the time of writing.

ETFs are accessible on most online trading platforms and can be purchased just like any other stock. You'll need to sign up for an online share trading platform. To do this, you'll need to do the following:

  • Provide personal details and proof of ID.
  • Transfer money into your trading account.
  • Log in to your account.
  • Search for the ETF you want and place a buy order.

Make sure to check out our extensive guide to exchange traded funds.

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