Final answer:
Index funds are designed to replicate the performance of market indices such as the S&P 500, providing investors with a diversified and passive investment option.
Step-by-step explanation:
The type of funds designed to replicate the performance of a specific basket of stocks like the S&P 500 are Index funds. These funds aim to mimic the overall performance of a market index. Unlike other types of mutual funds that may focus on specific sectors or strategies, index funds hold a portfolio of assets proportionate to the index they track, thus ensuring that the value of the mutual fund fluctuates with the average of the overall stock market. Investors often use index funds for diversification and a passive investment strategy.