The fund may weight the number of shares for each company it owns in proportion to the share price or company capitalization. For example, it may buy more shares of a company whose share price is lower than one with a higher share price. Alternatively, it may buy more shares of a large company than of a small company regardless of share price. The fund's prospectus describes the method of allocation. The fund may try to mimic the formula used in the index itself to achieve the same results as the index.
Index funds require little to no active management.
In most cases, computer-trading software dictates the portfolio allocation to match the chosen index. Buying and selling is infrequent because market indexes do not add or replace securities very often. As a result, portfolio turnover and management expenses are low. To build a portfolio of securities that consistently outperforms all other portfolios is virtually impossible. Since index funds own the stocks that make-up the index, they will perform as well as the market that the index measures.