The holdings in an index fund are not traded often because they are held to match an index. Most index funds are passively managed. Managers of actively managed funds , indexed or non-indexed, trade their securities more often. This results in capital gains and losses. When the fund has net capital gains, their shareholders must pay taxes on the capital gain distributions even if they are reinvested.
Most index funds have little capital gain distributions subject to tax.
Some investors think of this characteristic as a tax advantage. Since most index funds are managed passively, management expenses are lower compared to actively managed mutual funds. Two funds comprised of the same securities will perform the same. However, the one with lower expenses has an advantage. This concludes the tutorial on Index Mutual Funds.