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How are index companies earning profit?
20.05.2017 11:27

Making analysis and indexes how are the index company making profits out of it? Well index on its own has no great value; the value of this is derived with its underlining assets.  For instance, if we take the S and P 500 index the value of it is derived from spot.

In the year 2015 the corporate earnings were shrinking and the index maintenance was very important, the companies then decided to take a bigger piece from the smaller piece of profit. Index development helps the companies to make bigger profits.

Now spot being the asset on which the value will be derived cannot be traded, the index features are traded which highly depends on the appreciation and depreciation of the market. And for the trade of it there should be an appropriate seller and buyer and until they are there the contract is not generated.

This is called nothing but open interest, the buyers and seller both put some money and decides the exchanging amount. So the increase in interest means more amount is added to the index.

And the companies that fall under this index are big players, even in the loss making period or the drop down the real value of the assets of the company is still high.

And according to the report the profit of the companies of the S and P 500 have had increased in the year 2016.  The big generators of the profits are financial firms including the Hathaway.

Index maintenance includes monitoring and implementing the factors contributing to the index.

The companies earn a huge profit by this and investors as uses their indexes before investing is a sign of them using it properly.

To help the S and P 500 be consistent in the market over the time maintenance of this is used and if they develop than the chances of increment in profits is higher.

And as an Indian investor if you invest in S and P 500 companies even in the least of profits you can make a major junk of profit in Indian rupees.

Source : https://storify.com/dividendindex/how-are-index-companies-earning-profit

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