An index fund is a financial asset whose value is tied to a bundle of underlying securities. For example, one may buy an index fund that tracks the S&P 500, so if the S&P 500 goes up by 5% then the index fund value will go up by 5%. They are highly similar to ETFs (exchange traded fund) with one subtle difference: index funds can only be sold at preset times each day. They also have a less favorable tax structure to an ETF, but lack the bid-ask spread of an ETF.
Index funds are the subject of substantial controversy. Proponents argue that they provide better returns to investors at substantially lower fees, pointing to copious academic evidence that suggests that it is nearly impossible to outperform the overall market through day trading or active management. Opponents argue that the rise of index funds has led to an increase in corporate concentration, as the largest shareholders of many major corporations are now the same few index fund companies (Vanguard, Blackrock, State Street). These opponents worry that these shareholders will not push their portfolio companies to aggressively compete since they also are the largest shareholder of their industry rivals.