This week we’re continuing the series on simple investment explanations. By now you must have heard about the latest IPO (initial public offering) coming from Sagicor — the Sagicor Select Funds IPO. This is supposed to be the first publicly listed Index Fund in Jamaica.

Let’s find out what an Index Fund is. As always, we start with the simple, straightforward explanation. This week’s topic, however, requires us to know two things instead of just one; an Index, and a Fund.

 

INDEX — In the world of stock markets, an index is a grouping of stocks based on some criteria they all share (yep, it really is that simple). Whatever the criteria are, any stock that meets those criteria qualifies to be a member of the index. This allows an index’s movement to reflect the overall performance of those criteria in one place.

 

Again, in stock investing terms, indexes (or “indices” if you prefer the Latin pluralised version) show the performance of a group of stocks as a single number each day. The index is calculated and adjusted based on the overall value of each member company.

The bigger a company, the more it is able to move the index. This is called weighting and it allows the index to accurately show the overall effect of its member’s movements.

http://www.jamaicaobserver.com/sunday-finance/what-s-an-index-fund-_168641