Market indexes often use a company’s market capitalization to decide how much weight that security will have in the index. Index funds may take different approaches to track a market index: some invest in all of the securities included in a market index, while others invest in only a sample of the securities included in a market index. The S&P 500 Index, the Russell 2000 Index, and the Wilshire 5000 Total Market Index are just a few examples of market indexes that index funds may seek to track.Ī market index measures the performance of a “basket” of securities (like stocks or bonds), which is meant to represent a sector of a stock market, or of an economy. You cannot invest directly in a market index, but because index funds track a market index they provide an indirect investment option. For more information about these products, see our Investor Bulletin: Smart Beta, Quant Funds and other Non-Traditional Index Funds.Īn “index fund” is a type of mutual fund or exchange-traded fund that seeks to track the returns of a market index. ![]() The information provided in this bulletin may not apply to these “non-traditional” index funds. ![]() In recent years, new types of index funds that track custom-built indexes or benchmarks have become more common. Note: This bulletin provides basic information about how index funds, which have traditionally tracked market indexes, work.
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