When you invest into a index fund, how is that capital distributed to companies on the index?

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Well, firstly, the companies in the index fund don’t get any capital from stocks being traded on the exchange. They only get capital when they issue new stock.
For example, Tesla builds a model X. They get capital ($$) when you buy it from them (the primary market). If you decide to sell it next week to someone else, (secondary market) Tesla is not affected by the sale.

Secondly, index funds buy shares of stock in the secondary market. Look at a prospectus of a fund and take a look at their holdings. You’ll see how many shares the fund owns of a particular company.


Helpful! Thank you

Depends on the fund I think?


Most indices (and the ETFs that track them) are market-cap weighted. So more of your dollars effectively are invested in the largest companies

You can also find equal-weighted ETFs for the same index. So for example, an equal weighted SP500 etf would invest 1/500th of your dollars in each of the index members. The argument for this is that it doesn’t overweight the largest companies or companies who stock has run up already

Many of them publicly list the breakdown, as well

The capital is not distributed to the companies on the index.

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