A basket of securities is a collection of multiple individual securities combined into a single investment, designed to represent a broader market, asset class, or investment objective. The basket may be fixed or periodically adjusted to reflect changes in its objective.
In practice, baskets are the components behind many investment vehicles. Mutual funds and exchange-traded funds (ETFs) typically comprise a basket of securities to achieve diversification and to track an index or meet a strategy. A basket may be designed to reflect broad equity exposure, a specific sector, or a mix of asset classes (for example, stocks and bonds).
Baskets can be static, comprising a predefined set of securities, or dynamic, with periodic rebalancing to maintain a target allocation or index composition. The size and composition of a basket influence diversification, concentration risk, and liquidity, and they can be adjusted to align with a mandate or investment objective.
An index fund tracks a market index by containing a basket of securities chosen to mirror the index's composition. For example, an ETF that tracks the S&P 500 contains a basket composed of the 500 large-cap U.S. stocks.
Diversification · Index fund · Mutual fund · Exchange-Traded Fund (ETF) · Asset allocation · Portfolio