Educational material from 
What you will learn
- Distinguish a benchmark index from a fund product.
- Calculate one period’s change using specified starting weights.
- Describe a difference in percentage points without promising exact index tracking.
Write the rule used to calculate the index
Our constructed price index contains two companies. At the period’s start A has a weight of 60 percent and B has 40 percent. A’s price rises 10 percent during the period; B’s falls 5 percent. There are no dividends, new shares or changes to index membership. The index itself starts at 100.
The period change is 0.60 × 10 + 0.40 × (−5) = 4 percent. The index therefore reaches 104. A simple average of the two price changes would give 2.5 percent, which does not follow the specified weights. Record both weighting and period when explaining which index you mean.
If the table does not fit, scroll it sideways.
| Company | Starting weight | Price change |
|---|---|---|
| A | 60 % | +10 % |
| B | 40 % | −5 % |
| Weighted period result | 100 % | +4 % |
Let a fund model follow the same movement
A separate fund model starts with net assets of SEK 1,000 and follows exactly the same holdings movement before a stated cost. Assets first reach SEK 1,040. We then deduct a fictional total cost of SEK 8 for this particular period. The remaining SEK 1,032 represents +3.2 percent from the start.
The difference between +4 and +3.2 percent is 0.8 percentage points. The eight kronor are a fixed model cost, rather than a real fund’s annual fee or a general method for accounting for every fund expense. In practice, holdings selection, trading and other implementation differences may also affect how closely a fund follows its index.
An index name needs a definition
Two indices can cover different markets, use different weights or treat dividends differently. A price index and a measure that also includes dividends therefore need not show the same change. Establish what the comparison includes before concluding that a fund has diverged. A matching name alone does not make two measures equivalent.
Tracking an index does not imply a certain positive return. When the underlying investments fall, the fund value can fall too. Index funds may be broad or narrow, and the term does not give every fund the same cost. The two companies here are only a calculation dataset, rather than a description of a real market.
Check the same start, end and measure
For your own information exercise, record fund identity, the stated index, its definition, start date, end date and how the fund’s performance is reported. Leave missing details open. An attractive index name or a single ending value cannot replace a comparison made over a matching period with clearly defined measures.
Investiq’s lessons guide can help you continue with weights, percentage points and benchmark comparisons. This page describes no fund-trading feature or automatic index-difference measurement in the app. Use the model on paper and check the product guide separately for what the actual stock-learning experience offers.
Try it yourself
Another fictional price index starts with weights of 25 percent A and 75 percent B. A rises 20 percent and B falls 4 percent. Calculate the index change. A separate fund model starts with SEK 2,000, follows that change, then incurs a fixed period cost of SEK 10. What are its ending value and percentage result?
Show the solution and explanation
The index rises 2 percent. The fund model ends at SEK 2,030 and shows +1.5 percent, a difference of 0.5 percentage points.
0.25 × 20 + 0.75 × (−4) = 2. Before cost, the fund is 2,000 × 1.02 = SEK 2,040; after cost it is SEK 2,030. 30 / 2,000 × 100 = 1.5. All costs are fictional for one period.
Check your understanding
Can the index number 104 itself be bought as an asset?
The index is a calculated measure. A fund seeking to track it is a separate product.
Does index fund mean the fund always rises or tracks perfectly?
No. Its holdings can fall, while costs or implementation can create differences.
Practise with virtual money
Try what you just learned in a practice portfolio with virtual money. You don't deposit any real money.
How the practice portfolio worksKeep learning and practising
More lessons on this topic
Funds, bonds and ownership
- Shares and fund units: distinguish company ownership from a fund holding
- What is an ETF? Market price and fund value in a worked example
- Shares and corporate bonds: company ownership versus a debt claim
- A and B share classes: calculate ownership and voting percentages separately
- Listings and IPOs: new shares, existing shares and who receives the money
Sources and examples
The sources support the factual explanations. Calculations and exercises were created for this lesson. Amounts and price changes are invented unless stated otherwise.
This material is educational and does not recommend securities to buy. A simulated result does not guarantee a future result.
