Jasmine Birtles
Your money-making expert. Financial journalist, TV and radio personality.
How to Choose an Index Fund: A Beginner’s Guide to Picking the Right Fund for Your Investment Strategy
Ruby Layram
4th Dec 2025
If you’ve ever felt overwhelmed trying to choose an index fund, you’re not alone. With hundreds of options on the market, tracking dozens of different indices, with different fees, strategies, regions, and providers, it can feel like trying to pick the “best” cereal in the supermarket.
But the good news? Choosing an index fund doesn’t have to be complicated. In fact, once you understand what to look for, it becomes surprisingly easy.
In this guide, we’ll walk you through exactly how to research, compare, and choose an index fund that suits your investment goals, whether you’re building a long-term ISA portfolio or just dipping your toes into the world of investing.
What Is an Index Fund?
An index fund is simply a basket of investments (usually shares or bonds) designed to copy the performance of a specific market index.
So if the fund tracks the FTSE 100, it buys shares in the biggest 100 UK companies. If it tracks the S&P 500, it buys the top 500 U.S. companies.
No fancy stock picking, no guesswork, just tracking the market.
You can buy index funds as:
- ETFs (exchange-traded funds), which trade like shares
- Mutual funds, which don’t trade intraday
- Accumulating or distributing versions, depending on whether you want dividends reinvested or paid out
They are the favourite tool of long-term, cost-conscious investors.
How to Research Index Funds (Step by Step)
Here’s the practical part. Before choosing any index fund, make sure you look at these key factors.
1. Choose the Index You Want to Track
This is the most important decision.
Different indices = different types of investments. For example:
- FTSE 100: UK’s biggest companies, heavy in finance & energy
- FTSE 250: UK mid-sized businesses
- S&P 500: Large U.S. companies (Apple, Microsoft, Nvidia, etc.)
- MSCI World: Developed markets globally
- FTSE Global All Cap: Small-, mid-, and large-cap companies worldwide
- Emerging Markets: Higher risk, higher potential growth
Tip: For beginners, global index funds (like MSCI World or Global All Cap) give the best mix of growth + diversification.
2. Compare the Fund Providers
Some of the biggest and most trusted index fund providers include:
- Vanguard
- iShares (BlackRock)
- HSBC
- Fidelity
- Legal & General
A few things to check:
Fund size (AUM): Bigger funds are usually more stable and less risky. ‘AUM’ stands for assets under management.
Tracking method: Funds can be managed passively or actively.
-
Physical: Does the fund buy real shares?
Does the fund stick closely to the index? This affects performance more than you might think.
Understand the Fees (The Bit Most People Skip!)
Index funds are known for being cheap, but not all are equal.
You should look at:
OCF (Ongoing Charges Figure)
This is the annual fee, and the lower is better.
Many global funds charge 0.12%–0.25%, while some UK funds charge as low as 0.06%.
Tracking Difference
This shows how much the fund actually performs compared to the index it tracks.
A cheaper fund isn’t always the best if it tracks poorly.
4. Look at the Fund’s Structure
One of the most confusing factors to consider is the funds ‘structure’. Fund structure refers to the legal and operational framework that organises an investment fund, determining how capital is pooled from investors, how it’s managed, how profits and losses are distributed, and how investors can buy or sell their interests.
Here is an overview of the most common types of structure.
Accumulating (ACC)
Dividends are automatically reinvested → great for long-term growth.
Distributing (DIST)
Dividends are paid out → great for income investors.
Replication type
- Physical = simplest
- Synthetic = complex but sometimes cheaper
Domicile (where the fund is located)
Ireland (IE) and Luxembourg (LU) are common and tax-efficient for UK ETFs.
How to Choose the Best Index Fund for Your Strategy
Here are a few simple suggestions.
If you’re a beginner:
Go global.
A single fund like FTSE Global All Cap or MSCI World covers thousands of companies worldwide.
If you’re investing for retirement:
Choose low-cost, diversified funds and consider adding a bond index fund as you get older.
If you want higher growth potential:
Add a small percentage of:
- Emerging markets
- Small-cap indices
- Tech-focused ETFs
If you prefer a calmer ride (less risk tolerant):
Choose:
- A global fund + a bond fund
- A larger-cap index like the FTSE 100
Where to Buy Index Funds in the UK
You can buy index funds through an ISA, SIPP, or general investment account on platforms like:
- Vanguard
- Hargreaves Lansdown
- Fidelity
- AJ Bell
- Freetrade
- Trading 212
- Moneybox
ETFs are available on most apps; mutual funds tend to be more platform-specific.
Step-by-Step: How to Buy an Index Fund
- Choose an investment platform
- Add money to your account
- Search for the index fund’s name or ticker (e.g., VWRL, VUSA, IUSA)
- Select how much you want to invest
- Confirm your purchase
- Set up a monthly automatic contribution if possible
- Review your portfolio once or twice per year, not every week
Final thoughts
My top tip when it comes to choosing an investment fund (and any type of investment), is to keep things simple.
Narrow down your options to reduce decision fatigue and stick to your strategy.
In fact, you can build a strong, globally diversified portfolio using just one or two well-chosen funds.
Look for:
- Low fees
- A fund size
- A solid provider
- The right level of risk
- An index that matches your goals
Long-term investing is all about consistency, not finding a “magic” fund.
And that’s great news… because it means anyone can do it.
Do you want to learn more about investing? Sign up for our fortnightly MoneyMagpie Investing Newsletter. It’s free and you can unsubscribe at any time.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence. When investing your capital is at risk.
Leave a Reply