Low-cost index funds for simple investing

Index funds, also known as tracker funds or passive funds, are one of the most versatile building blocks of your portfolio, and while they’re simple on the surface, it’s important to understand how they work.

While actively-managed funds can often incur high management fees for the supposed expertise of the fund manager, index funds are a low-cost alternative that offer investors convenient access to a sector or geography. This is what gives this type of investment fund its simplicity and versatility.

Some of the top funds that investors choose are, unsurprisingly, index funds – especially as passive funds often outperform their active counterparts.

Try 6 free issues of MoneyWeek today

Get unparalleled financial insight, analysis and expert opinion you can profit from.

Start your trial

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

“There is a high rate of underperformance for active investing strategies so there is a persuasive school of thought that investors should just aim to maximise returns by minimising costs with inexpensive index funds,” said Rob Morgan, chief investment analyst at online investing platform Charles Stanley Direct.

“They represent a particularly good strategy for areas where portfolio managers consistently struggle to beat the market index – often large, well-researched markets. The US market is a prime example, and investors will have done well in recent years simply to buy an S&P 500 tracker,” Morgan added.

Index funds can typically offer low costs as well as low transaction fees due to low turnover.

We take a look at the tracker funds available to UK investors that carry the lowest ongoing fees, as potential low-cost additions to your portfolio.

What are index funds?

An index fund replicates the performance of a major index, like the FTSE 100 in the UK or the S&P 500 in the US.

“They do this by simply buying the same (or at least very similar) mix of investments as the index they track,” said Morgan.

“Rather than trying to beat the market, index funds simply aim to replicate it,” said Chris Beauchamp, chief market analyst at online investing platform IG. “They hold the same securities as the index they track, in the same proportions, so when the index rises, so does the fund, and vice versa.”

This is one of the reasons why index funds appeal to many investors, especially beginners. If you are looking to gain exposure to the global stock market, or a regional equivalent, an index fund is often the most direct way of achieving it.

Low costs and more: what are the advantages of index funds?

The active versus passive investing debate is age-old. In theory, a skilled active manager will pick and choose stocks that will outperform the broader market benchmark (usually an index that a tracker fund will follow).

In reality, however, beating the market is difficult and the majority of active funds not only fail to do so but also significantly underperform. That, coupled with the fact the fees on active funds are almost always higher, means they can be an inadvisable way to invest in the stock market.

“Low costs are the headline advantage [of index funds], as annual charges are typically well below 0.5%, compared to 1%+ for actively managed funds,” said Beauchamp. “Over time, that difference compounds significantly.

They are also “simple to understand, easy to buy, and inherently diversified, owning a slice of every company in an index rather than betting on individual stocks”, adds Beauchamp.

AJ Bell’s latest Manager versus Machine report, released in July 2026, showed that barely two fifths (42%) of active funds outperformed passives in the first half of 2026, and that over the last 10 years only 21% of active funds have outperformed their lower-cost index-based counterparts.

“The passive industry will be rubbing its hands with glee, waiting for more investors to give up on using active funds and replace them with tracker funds and ETFs in their portfolio,” said Dan Coatsworth, head of markets at AJ Bell. “Global equity tracker funds have become the default choice for first-time investors. Low costs and broad exposure to companies around the world make them easy-to-understand investment products. For some people, that’s all they need.”

What are the disadvantages of index funds?

One of the obvious drawbacks of index funds is that, while they are unlikely to underperform it, they won’t significantly outperform the index they are tracking. Actively managed funds, by contrast, have the potential to beat their benchmark.

Index funds also expose investors to concentration risk, given that market cap-weighted indices become concentrated in the largest stocks.

“It is worth noting that the huge rise in the share prices of a cluster of large tech and e-commerce businesses has overwhelmingly driven the US market over the past decade,” said Morgan.

The over-staturation that index funds can cause is reinforced by the rise of momentum investing – a popular investment style that effectively means investing in the stocks that have registered the largest gains.

“Given the now-concentrated nature of these indices, should these stocks have a tougher time, a standard US or global index fund could struggle,” Morgan continued. “You could say that investing in the US market passively has rarely been as concentrated, and therefore as risky, as it is today, and the more diverse approach of an active fund could help temper this.”

12 low-cost tracker index funds to consider

Here, we’ve picked out a (non-exhaustive) selection of some low-cost index funds and exchange-traded funds (ETFs) that highlight the different kinds of exposure index funds can offer.

This information does not reflect all the fees and charges (as well as discounts) that might apply through different brokers.

^{*To 6 September 2026, via Fefundinfo}

Beauchamp highlighted VWRL, calling this “a genuine one-stop-shop for diversification” given the broad exposure across developed and emerging markets it offers by tracking the FTSE All-World Index.

^{*To 6 September 2026, via Fefundinfo}

^{*To 6 September 2026, via Fefundinfo}

^{*To 6 September 2026, via Fefundinfo}