Why free float indices?
Ever wondered why free float indices have become so popular of late, particularly, with increasing proliferation of ETFs? Exchange-traded funds (ETFs) are based on the concept of ‘passive investing’ by just following an underlying benchmark for investment, to reduce cost of research and investment decisions. Simply put, ETF are mutual fund units whose portfolio mimics the composition of a benchmark index like S&P500 by investing in stocks that form the index in the same proportion as the weightage of these stocks in the index. This way, performance of the fund fluctuates with the index performance. ETFs provide investors with facility of a mutual fund with Liquidity like stocks to invest or divest at will in the market. ETFs are the primary customers for licensing indices. What is free float – free float or investible weight of a stock is the percentage of the total issued shares of a stock that is available for trading or investment (floating) in the market. This factor