Best Index Funds UK – Top UK Index Funds to Invest in Today

Fact Checked by Gary McFarlane

If you’re looking to invest in stocks and shares – but don’t quite have the time or knowledge to select individual companies, it might be worth considering an index fund. In a nutshell, this will see you invest in dozens – or even hundreds of stocks through a single trade. As such, you can create a diversified portfolio of stocks and have your investment managed for you by the respective index fund provider.

In this guide, we review the Best Index Funds UK based on risk, profitability, and market diversity – as well as show you how to get started with a low-cost investment today.

Best Index Funds UK – List of Top Index Funds UK

There are hundreds of index funds available to investors in the UK. While some like to focus on UK-based stocks, others give you exposure to international companies based in the US and other financial markets.

With that said, below you will find an overview of the very best index funds in the UK right now.

  1. SPDR S&P 500 Index – Best Index Fund for US-Listed Companies
  2. iShares FTSE 100 UCITS ETF – Best Index Funds for FTSE 100 Stocks
  3. Vanguard Total Stock Market Index Fund ETF -Top Index Fund for With Almost 4,000 US Stocks
  4. iShares Core Dividend Growth ETF – Best Index Fund for Dividend Stocks
  5. iShares Asia-Pacific Dividend UCITS ETF – Great Index Fund for Investing in Asia-Pacific

You will find a full analysis of each top-rated index fund by scrolling down.

 67% of retail investor accounts lose money when trading CFDs with this provider.

1. SPDR S&P 500 – Best Index Fund for US-Listed Companies

You might be surprised to see that the SPDR S&P 500 comes out as the best index fund in the UK – not least because this focuses exclusively on US-listed stocks. However, the S&P 500 is arguably the go-to index fund for those seeking a low-risk and diversified way of investing in the stock markets. In a nutshell, the S&P 500 is an index that tracks the value of 500 large-scale companies in the US across both the New York Stock Exchange (NYSE) and NASDAQ.

This includes some of the most recognized and traded stocks globally – such as Apple, Facebook, Amazon, Tesla, IBM, Disney, Microsoft, Walmart, and hundreds more. In effect, by injecting capital into this index fund, you will be investing in the wider US economy. Most crucially, not only is the SPDR S&P 500 ‘weighted’ based on market capitalization, but it is regulatory ‘rebalanced’ by the index fund provider. This ensures that your portfolio contains only the largest and best-performing stocks in the US markets.

SPDR S&P 500

In terms of performance, the S&P 500 has a long-standing track record of rewarding investors. In fact, since its inception in 1926, the index has averaged annualized returns in excess of 10%. What we also like about this index fund is that it gives you access to two forms of income. This includes capital gains when the index fund increases its share price – as well as quarterly dividend payments. Best of all, when using a UK-based broker like eToro – you can invest in the SPDR S&P 500 on a 0% commission basis!

67% of retail investor accounts lose money when trading CFDs with this provider.

2. iShares FTSE 100 UCITS ETF – Best Index Funds for FTSE 100 Stocks

If you’re looking for the best index fund in the UK in terms of domestic stocks – your best bet is the iShares FTSE 100 UCITS ETF. As the name implies, this index fund will track the FTSE 100. This means that you will be investing capital into the 100 largest companies listed on the London Stock Exchange. This index fund bases its weightage strategy on market capitalization. This means that the 100 constituents of the FTSE 100 represent the 100 most valuable domestic firms.

To give you an idea of where your money will be invested, the iShares FTSE 100 UCITS ETF weights AstraZeneca, Unilever, Diageo, and HSBC at just over 6.83%, 5.28%, 4.14%, and 4.07% – respectively. you then have the likes of GlaxoSmithKline (3.53%), BP (3.40%), Royal Dutch Shell (3.38%), and British American Tobacco (3.15%). These figures will change every quarter – depending on how each individual constituent performs on the London Stock Exchange.

iShares FTSE 100 UCITS ETF

Much like the previously discussed SPDR S&P 500, the iShares FTSE 100 UCITS ETF gives you access to both capital gains and dividends. When it comes to past performance, it should be noted that the FTSE 100 has fallen behind the S&P 500 by some distance in recent years. For example, in the five years between September 2016 and 2021, the FTSE 100 has grown by just 1.87%. At the other end of the spectrum, the S&P 500 has increased by just over 100%!

67% of retail investor accounts lose money when trading CFDs with this provider.

3. Vanguard Total Stock Market Index Fund ETF -Top Index Fund for With Almost 4,000 US Stocks

If you are looking to take diversification to the very next level and wish to focus on the more lucrative and stable US economy, then you might also consider the Vanguard Total Stock Market Index Fund ETF. Put simply, while the previously discussed S&P 500 gives you access to 500 large-scale stocks, this index fund consists of almost 400 US-based companies of various shapes and sizes. This means that you will be invested in thousands of equities from virtually every industry and sector imaginable.

Naturally, to ensure that you are able to invest in a risk-averse manner, the Vanguard Total Stock Market Index Fund ETF has a large focus on companies with a large market capitalization. For instance, the largest holdings go to the likes of Apple, Microsoft, Alphabet (Google), Facebook, Tesla, NVIDIA, and Berkshire Hathaway. However, your portfolio will also contain much smaller companies that you might not have heard of.

Vanguard Total Stock Market Index Fund ETF

This might be because the respective company is still up-and-coming, or it operates in a niche market. Nonetheless, the Vanguard Total Stock Market Index Fund ETF has performed very well since its inception in 2001. In fact, the index fund has generated average annual returns of 8.80% In more recent times, this top-rated index fund has generated growth of 18.75% annually over the past three years, and 44.32% in the 12 months prior to writing this page.

67% of retail investor accounts lose money when trading CFDs with this provider.

4. iShares Core Dividend Growth ETF – Best Index Fund for Dividend Stocks

Many investors will look to focus on dividend stocks – as this promotes income every three months in addition to capital gains. Plus, dividend companies are typically strong, stable, and established – as they have the financial means to share profits with stockholders. However, knowing which dividend stocks to add to your portfolio can be a challenge – especially for beginners. With this in mind, you might instead consider placing a single investment into the iShares Core Dividend Growth ETF.

As the name suggests, this index fund – which is backed by leading ETF provider iShares, gives you exposure to a carefully selected basket of dividend-paying companies. In fact, iShares noted that all companies within its portfolio have a long-standing and sustained history of dividend growth. In total, this popular index fund contains over 390 individual stocks – all of which are listed in the US and weighted appropriately.

iShares Core Dividend Growth ETF

To give you an idea of the breakdown, iShares Core Dividend Growth ETF gives a weighting of between 2-3% to Microsoft, JP Morgan, Verizon, Apple, Johnson & Johnson, Procter & Gamble, and Pfizer. At the other end of the scale, you have companies like Cohen & Steers, Simpson Manufacturing, and Cognex Group. What we also like about this index fund is that not only can you invest on a 0% commission basis at FCA-broker eToro – but the annual expense ratio amounts to just 0.08%.

67% of retail investor accounts lose money when trading CFDs with this provider.

5. iShares Asia-Pacific Dividend UCITS ETF – Great Index Fund for Investing in Asia-Pacific

While much of the focus thus far has been on index funds containing stocks from the UK and US markets, some of you might be looking to diversify further afield. If this is the case, you might want to consider the Shares Asia-Pacific Dividend UCITS ETF. This index fund consists of 50 leading companies from the Asian-Pacific regions, all of which have a sustainable track record of paying dividends. To give you an idea of the portfolio breakdown, companies from Japan and Hong dominate this index fund – with a weighting of 40.78% and 32.62% respectively.

You will also be gaining exposure to companies listed in Australia, China, New Zealand, and Singapore – so your investment will be well diversified. Some of the most recognized companies in the iShares Asia-Pacific Dividend UCITS ETF include Spark New Zealand, JB Hi-Fi, PCCW, Power Assets, VTech Holdings, and AusNET. When it comes to performance, it should be noted that this index fund is a lot more volatile than the other options we have discussed today. Naturally, this is because it contains many companies that operate in the emerging markets – which is known for its enhanced volatility.

iShares Asia-Pacific Dividend UCITS ETF

For example, in the financial year ending June 2021, the iShares Asia Pacific Dividend UCITS ETF generated growth of 27.55%. However, in the prior year, the index fund went down in value by 20.90%. As such, although this index fund allows you to diversify into more exotic markets, you should perhaps keep your stakes more modest. An additional consideration to make when investing in this index fund is that you will pay an annual expense ratio of 0.59%. This is somewhat expensive in comparison to other index funds available in the UK.

67% of retail investor accounts lose money when trading CFDs with this provider.

Best Place to Buy Index Funds UK

Once you have chosen an index fund to invest in – you then need to find a suitable online broker that gives you access to your preferred market. You also need to consider dealing fees, user-friendliness, accepted payments, and whether or not the broker is regulated by the FCA.

If you’re looking to get started with an investment right now – below you will find a selection of the best brokers offering index funds in the UK.

1. eToro – Overall Best Place to Invest in Index Funds UK

bitcoin todayeToro wins hands down as the best place to invest in index funds in the UK. This popular online broker is authorized and regulated by the FCA, and your investment balance is covered by the FSCS. The eToro platform is simple to use – making it ideal for both beginners and experienced investors alike. You can get started with an eToro investment account in under five minutes – and the minimum deposit is just $200 (about £145).

You can fund your account with a UK debit/credit card, Paypal, Skrill, bank account transfer, and more. Once your account is funded, you will then have access to dozens of leading index funds. In fact, all of the best index funds UK that we reviewed earlier are accessible on the eToro website. The minimum investment per index fund is just $50 (about £36) – irrespective of how much the instrument is trading for. This is great for diversification purposes, as you can invest in a wide variety of index funds at various stakes.

index funds at eToro

When it comes to fees – this is where eToro really stands out from the crowd – as you can invest in ETFs at a commission rate of 0%. Plus, you won’t be charged any UK stamp duty – which saves you a further 0.5%. This 0% commission rate is also the case with the thousands of UK and international stocks hosted by eToro. Additionally, this platform also allows you to trade passively via the Copy Trading tool. Here, you will need to select a seasoned trader that you like – and then eToro will copy all future investments in your own account.

Pros

  • Invest in stocks and ETFs at 0% commission
  • Minimum investment per trade from just $25
  • Supports debit/credit cards, e-wallets, and local bank transfers
  • Regulated by the FCA, CySEC, and ASIC
  • Used by over 20 million people
  • Perfect for beginners
  • Social and copy trading tools

Cons

  • Perhaps too basic for technical traders
  • No support for MT4 or MT5

67% of retail investor accounts lose money when trading CFDs with this provider.

2. Capital.com – Trade Index Funds at 0% Commission and With Leverage

capital.com reviewIf you are simply looking to invest in the best index funds in the UK on a long-term basis – then Capital.com might not be the right trading platform for you. However, if you are looking to invest on a more sophisticated basis – perhaps through a day or swing trading strategy, Capital.com offers many benefits. First and foremost, Capital.com specializes in CFD instruments. This means that you won’t be investing in the index fund itself. Rather, you will be speculating on its future value.

For example, if you think the index fund will increase in value, you will place a buy order. Alternatively, if you think the index fund will experience a decline in the market, you can profit from this by placing a sell order. This gives you a lot more in the way of flexibility – as you can target both rising and falling prices. Furthermore, Capital.com allows you to trade index funds with leverage. Limits are typically capped at 1:5 for UK retail clients.

capital.com review

However, if you are looking to trade a major index via CFDs – such as the FTSE 100 or Dow Jones 30 – then you might be able to get limits as high as 1:20. Always consider the risks of trading with leverage – as both your profits and losses will be amplified. Nevertheless, Capital.com is also a great platform when it comes to fees – as you can trade index funds at 0% commission and competitive spreads. Getting started at Capital.com requires a minimum deposit of $20 ($250 on bank wires) when using a debit/credit card or e-wallet.

Pros

  • Top-rated spread betting and CFD broker
  • Regulated by the FCA
  • Minimum deposit just $20 (debit/credit cards and e-wallets)
  • 0% commission on all markets
  • Tight spread and no deposit/withdrawal fees
  • Thousands of financial markets supported
  • Great for beginners

Cons

  • Advanced traders might find the platform too basic
  • Minimum deposit of £250 on bank transfers

76.25% of retail investor accounts lose money when trading CFDs with this provider.

How to Choose the Best Index Fund in the UK

There are many considerations that need to be made when searching for the best index funds in the UK. This includes core metrics such as past performance, risk, expense ratios, and the specific markets that the fund gives you access to.

We explain these considerations in more detail in the sections below so that you can choose the best UK index fund for your financial goals.

Target Market

Index funds will always have a specific market that they will look to target. For example, the index fund might invest in all 100 stocks from the FTSE 100 or the 500 companies that make up the S&P 500.

Other index funds might look to focus on top-performing dividend stocks, while others might look to gain exposure to the emerging markets. Ultimately, you should only invest in an index fund if it’s targeting a market that aligns with your financial goals.

Risk

The amount of risk that you take when investing in an index fund is largely based on the specific stocks that are being tracked. For example, by investing in an index fund that tracks the S&P 500 – it could be argued that your risk levels are somewhat low. After all, you are essentially investing in the wider US economy.

s&p 500

On the other hand, if you invest in an index fund like the iShares Asia-Pacific Dividend UCITS ETF – the risks are much higher. This is because you will be investing in companies based in emerging markets – such as China and Singapore. These marketplaces are prone to enhanced volatile levels – so do bear this in mind before investing.

Past Performance

Looking at the past performance of an index fund is another crucial step that you should take when searching for the best investments in this market. Importantly, the longer the index fund has been operational. – the more data that you have to hand.

  • For example, the best index fund in the UK that we came across – the SPDR S&P 500 – has generated average annualized returns of over 10% since 1926.
  • That’s almost 100 years of verifiable data.

However, you then have index funds like the iShares Core Dividend Growth ETF – which has only been trading since 2004.

Income or Capital Gains

It’s also important to assess how the index fund in question aims to generate financial growth. For example, some of the best index funds in the UK focus on top-performing dividend stocks. This means that much of your earning capacity will come via dividends that are paid every three months.

On the other hand, other index funds in the market will focus on capital gains. This is especially the case with index funds that target up-and-coming growth stocks that are yet to pay any dividends.

Expense Ratio

When you invest in an index fund, you will need to pay fees to the provider. This covers an assortment of costs – such as those related to managing your portfolio, adding and removing stocks, processing investments and withdrawals, and customer service. All of these fees are packaged into a single cost known as the expense ratio.

ftse 100

From the research that we performed, the best index funds in the UK will charge an expense ratio of less than 0.10% per year. This is especially the case when you invest in index funds that track highly liquid marketplaces like the FTSE 100 or S&P 500. However, if you are looking to invest in more exotic markets – such as those based in Asia or the Middle East – you should expect to pay a much higher expense ratio.

How to Invest in the Best Index Funds UK – Detailed Walkthrough

To conclude this guide, we are now going to show you how to invest in the best index funds in the UK every step of the way. For our walkthrough, we will show you how to complete the process with FCA-regulated broker eToro – which allows you to invest in index funds at 0% commission, 0% stamp duty, and at a minimum stake of just $50.

Step 1: Open a Trading Account

The first thing you need to do is open an account with eToro. This is a simple and standard procure that will require some basic personal information so that eToro knows who you are. For example, you will need to provide your full name, date of birth, telephone number, and email address.

how to join etoro

If you are investing less than $2,250 (about £1,600) into your chosen index fund – then you can proceed to the deposit page. However, if your deposit will be greater than this figure, then you will need to upload a copy of your passport or driver’s license first – as per FCA regulations. This won’t delay the process though – as eToro can verify your document in under two minutes.

67% of retail investor accounts lose money when trading CFDs with this provider.

Step 2: Add Investment Funds

The next step is to make a deposit. The easiest way to do this is to use a debit/credit card – as your transaction will be processed by eToro instantly. This is also the case should you use an e-wallet like Paypal and Skrill.

UK bank transfers are also supported. But, it can take a number of days for the funds to be processed, and thus – this will delay your index fund investment.

Either way, the minimum deposit is $200 at eToro, albeit.

Step 3: Search for Index Fund

All index funds at eToro are represented by ETFs – which is the industry standard. To see what index funds are available, click on the ‘Trade Markets’ button followed by ‘ETFs’. 

index funds at eToro

You can also search for the specific index fund that you are interested in – should you already know which market takes your fancy. In our example above, we are searching for the ‘SPDR S&P 500’ index fund.

Step 4: Confirm Index Fund Investment

You now need to enter the amount of capital that you wish to invest in your chosen index fund – ensuring that you meet the $50 minimum. Once you are ready to invest, click on the ‘Open Trade’ button.

index funds at eToro Take note, in the example above, the order box states ‘Set Order’. This is because, at the time of writing, the ‘SPDR S&P 500 market is closed. However, eToro will execute your investment as soon as it opens!

Best Index Funds UK – Conclusion

We have reviewed the very best index funds in the UK – and narrowed our findings down to five top-performing options. You should, however, perform your own research when choosing the right index fund for you.

Once you have determined which index fund takes your fancy, you will then need to invest via an online broker. We found that eToro is the best online brokerage site for index fund investments – as you can enter the market at 0% commission and 0% stamp duty.

At eToro, it only takes a couple of minutes to open an account – and you can pay for your index fund investment with a UK debit/credit card, bank transfer, or Paypal!

eToro – Best Index Fund Platform UK

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About Kane Pepi PRO INVESTOR

Kane Pepi writes for several high profile publications such as InsideBitcoins, the Motely Fool, and Learnbonds. Based in Malta, Kane is extremely skilled at complex subjects related to financial matters - including a Bachelor’s Degree in Finance, a Master’s Degree in Financial Crime, and actively engaged in Doctorate Degree research, for the money laundering threats of the blockchain economy.