What is index and how do these index companies make money?
Many people are unaware of the concept of index, what do they actually mean? An index is nothing but a statistical measure of a portfolio of stocks; this is basically representing the current market condition. They are mainly used by the investors to know more about investing in which profile could be more beneficial. The index company draws the index analysing all the contributing factors to the profile.
The index maintenance is solely in hands of the factors contributing to the profile. And even the index development depends on them only.
Now many of us might be wondering that how does these index companies actually work?
The companies which basically define the major indexes do not have a direct earning of profits, they lack earning money from brokerages and not from the direct earnings. These brokerage earnings are from people who use the indexes for making prime decisions for their investments.
These clients are basically the long lasting public tools which bring good will to the companies. There are chances of manipulation in the stock preference while drawing the opportunities in choosing specific stocks are included in each index.
Many people do not know that even the index funds are passively managed and they simply hold the securities contained in the index and seek to keep the allocations in funds.
One has to make sure that they consider different indexes before considering their investment options.
There are chances that the companies might manipulate the index or do not consider some ground factors that are primarily in your list.
Analyze the market options and opportunities and only then choose one of the options which can be the best in your interest.
Before choosing the index you try and know what are the factors they consider while drawing an index, and one must know that every index factor differs from company to company. And the factors are at times not even evaluated properly, so one must be wise and consult with experts and other veterans before making a decision about their investment.