I have read the Wikipedia page but I still don't get the concept. Who maintains the "index of a specific financial market"?
For example, one index fund could invest in companies in the S&P 500, but
- who computes the S&P 500?
- Why are they sharing this information and
- how do they recuperate the costs inherent in computing the S&P 500?
Even if there are computer systems managing these indices, no computer system can be "trusted" as it's as good as the team of software programmers who implemented a set of rules that they are not in ownership of.
These rules change and might even be misunderstood between the owners ("business people") and the implementers (programmers).
Hence, by this understanding of mine, no index can be passive. I expect significant human interaction, i.e. "active management" to be involved in the maintenance of these indexes.
To complete this question:
Why is then "active management" not required for indexed funds?
and how does it lower taxes? (perhaps this could be a different question if this has become too broad)