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An indexed annuity tracks the performance of particular stock indexes such as the S & P 500, FTSE 100, Hang Seng and the Dow Jones. This type of annuity may use a combination of equity indexes, commodity indexes and bond indexes. An indexed annuity has a fund manager that chooses which individual stocks the fund will invest in. In general, index funds invest in companies that have holdings in stock or bond indexes.

There are a number of potential benefits in investing in an indexed annuity. They are often less expensive to invest in than other kinds of mutual funds, having automated portfolio decisions and lower number of transactions. They can also provide investors with the ability to reduce investment risk through portfolio diversification.

Indexed annuities is a combination of a fixed and a variable annuity, giving you the best of both worlds.