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Investible Weight Factors (IWFs)


Introduction

Free float methodology is globally regarded as an ideal methodology for calculation of equity indices. As per this methodology, free-float market capitalization of all index constituents is considered for calculation of the index. Free-float market capitalization of the index constituents is derived by applying IWFs on full market capitalization of respective companies in the index. This approach aims to limits the influence of a particular company in the index to the extent of its actual free float and reduces influence of large promoter/ strategic holding (which generally is not available for trading) on the index, thus making it truly investable.

Free float methodology in index calculation aids both active and passive investment strategies. Active managers are able to compare their portfolio return vis-à-vis the investable index and at the same time passive fund managers are able to offer low tracking error by introducing passive funds such as index funds, exchange traded funds linked to investable indices calculated based on free-float methodology.

NSE Indices - Guideline note on calculation of investible weight factor

Updated on: 17/02/2023