Yes and no. Mutual funds are a portfolio of stocks owned by many shareholders. They may be index mutual funds or allowed to invest in any security allowed by their registration statement and prospectus. Index funds can only invest in the securities that comprise the index the fund is following. Mutual funds, by their structure must distribute capital gains (if any) to shareholders at least annually, whether you want/need them or not. An alternative to mutual funds is the Exchange Traded Fund or ETF. Most ETF's are index funds. The major difference for taxes is that ETF's do not create a tax incidence for you if they sell a security while you hold the ETF. ETF's are available to invest in almost any market you want to participate in. For more information about ETF's visit www.etf.com or the websites of State Street Global Advisers or iShares. As for your best options, without knowing a whole lot more about your personal situation and finances, our industry rules prevent us from making a specific recommendation or recommendations to you directly. Wish that were different, but those are the rules we have to work with.
Mutual Funds are a "basket" of investments run by an Investment Management Company. Index Funds are a type of Mutual Fund (could also be an ETF) that attempts to mirror an index, such as the S&P 500.
Index funds do not try to predict the "market" but only to replicate an index that "tracks" the market.
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