Index funds, ETFs and hidden overlap

An index is a rulebook for a list of securities — for example 'the largest companies on an exchange, weighted by size'. An index fund tries to copy that list rather than having a manager pick favourites. You get the index's return minus the fund's costs, including its bad years.

Both are pooled funds. An ETF (exchange-traded fund) trades on an exchange during the day like a share, so its price can move minute to minute and you may see a bid-ask spread. A traditional mutual fund is bought or sold at one price calculated at the end of the trading day. Either wrapper can hold an index strategy or an actively managed one; the wrapper is not the strategy.

Read the fund's documents for what it holds, how it is weighted and its expense ratio — the yearly cost as a percentage of your investment.

Broad funds often share their biggest companies. A 'total market' fund and a 'large-cap growth' fund may both hold the same giant firms near the top. Owning both can feel diversified while your exposure to a few names is higher than you intended.

To estimate exposure to one company across funds: add up (amount in fund × that company's weight in the fund), then divide by your total. Weights change, so treat this as a snapshot.