Tracker funds are developed to mirror or track the performance of an existing market index. Put simply, a tracker fund is a type of pooled fund, which invests in a wide range of financial assets (e.g. stocks, bonds, cash, etc) in the same proportions and levels of risk as those in the specific index it is tracking. For example, a tracker fund which is tracking the FTSE 100 index would invest in the same proportions and levels of risk as those equity holdings within the FTSE 100 list. In terms of structure, tracker funds are typically backed by a management team to maintain the fund’s holdings and provide oversight and advice as and when needed.

The greatest advantage tracker funds have over other pooled investments is their cost-effectiveness and ability to offer a tailored fund which works to match an investor's own stated aims. Tracker funds are often much lower in fees, since active management and research are less time-intensive and costly than those of other types of pooled fund. This low risk and cost attracts long-term investors, as costs are offset by passive performance and relatively low costs. Furthermore, as tracker funds focus on replicating the performance of a chosen index or stock, rather than trying to outperform it, there are limited opportunities for outperforming market changes or missing out on market gains.

Tracker funds can be customized according to investor's needs by selecting an appropriate index to track and setting the appropriate levels of risk / exposure. They are also a good option for investors who are keen to take advantage of new markets and emerging sectors, but may not have the expertise or capacity to actively invest in these industries. Customized tracker funds allow investors to access a diversified portfolio of stocks within an individual sector or country, whilst managing the risk associated with investing in a single asset class.

Overall, tracker funds offer investors an easy and cost-effective way to gain exposure to a wide range of market indices, stocks, and asset classes without the need for active management or research. They provide a low-cost alternative to actively managed funds which have the potential to increase profits against the benchmark index, and allow long-term investors to enjoy the benefits of passive index performance.