An index is a method to track the performance of a group of assets in a standardized way. As Nifty 50 tracks the performance of the top 50 Stocks of Indian Stock market. Whereas An index fund is a fund that seeks to replicate the returns of an index. How does an index work? An index owns all the stocks in an economy in ‘proportion’ to their ‘market values’. It means that higher the market value of a stock, the higher it’s weightage in the index. But there is a problem with this, We know that not all shares are readily available in same proportion Some are locked in the hands of promoters & strategic investors etc. So to make an index truly investable it owns all the stocks in proportion to their free float market values. Free float = Share Price x (Number of Shares Issued – Locked-In Shares) Why index? ...