an index fund is different, it simply tracks the stock market or a particular index (eg the dow). the thing is to find one with low fees (e.g, in america, vanguard) because the buying and selling have a cost and for people who trade frequently it's what kills earnings.
a better explanation can be found here:
http://www.fool.com/60second/indexfund.htm
but dividends are another path to go. there is a guy called jakob fiskar who managed to "retire" from his mad scientist job (he was a physicist) in 7 years... he wrote a little crazy tract on "early retirement extreme" where he explains how to live with little and be financially independent quickly--- he did it with dividend stocks.
now this isn't for the faint of heart and it fits more the ascetic approach to life but he had a forum here:
http://earlyretirementextreme.com/
and his book can be found here:
https://www.createspace.com/3457832
very smart guy, very DIY, has since gone back to work in the financial sector as a mathematician, but if you figure out his method you could be free from serfdom/potential serfdom very quickly. i'm not interested in "retirement" per se (i do what i like and i have no master), but having the flexibility to have no financial hurdles would be awesome.
anyway, enjoy.