FAQs

Question

What are the problems faced during Index Rebalancing?

Answer

Passive funds based on a particular index have to replicate the index structure in their respective AUMs. Hence, on the rebalancing day, fund managers try to buy any fresh stocks introduced into the index and also sell the stocks removed from the index. Also, once a particular share is included in an index, its visibility increases. All this increases demand for the shares, reduces their supply and pushes up transaction costs, and vice versa.



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