Definition
Investible Weight Factor (IWF)
The investible weight factor is the proportion of a company's total shares that are freely available for public trading, used to scale full market cap down to free-float market cap for index weighting.
Index providers like NSE Indices assign each constituent an IWF between 0 and 1 based on shareholding data, excluding promoter, government and other locked-in stakes. A company with 40% promoter holding has an IWF around 0.6, and its index weight is based on that free-float portion.
Changes in the IWF, for example after a promoter sells down or a fresh lock-in expires, are implemented at periodic reviews and shift the constituent's free-float market cap weight. These revisions force passive funds to rebalance, making the IWF an under-appreciated driver of index inclusion impact.
Related terms
- Free-float Market CapitalisationFree-float market capitalisation values a company using only the shares available for public trading, excluding locked-in holdings of promoters, governments and strategic investors.
- Index ConstructionIndex construction is the set of rules defining how an index is built, including eligibility criteria, weighting scheme, number of constituents and selection thresholds for liquidity and size.
- Index RebalancingIndex rebalancing is the periodic adjustment of constituent weights back to their methodology-defined levels, accounting for price moves, capping limits and corporate actions, without necessarily changing the membership.
- Capping (Index)Capping is an index rule that limits the maximum weight any single constituent, or group such as a sector, can have, preventing excessive concentration and ensuring diversification.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.