Index

A way of measuring the value of a section of the stock market. An index is an imaginary portfolio of securities representing a particular market or a portion of the market. It is used by investors and financial managers to describe the market, and to compare the return on specific investments. Each index has its own calculation methodology – computed from the prices of selected stocks. As an index is a mathematical construct, it may not be invested in directly, so it may be used to construct index mutual funds and ETFs whose portfolios mirror the components of the index.