# Index Tracking & Replication The goal of each ETF is to replicate its [index](https://www.justetf.com/en/academy/what-is-an-index.html) as closely and cost-effectively as possible. At the same time, the ETF investor receives all income from the securities in the underlying index. Therefore you participate in dividends and interest payments with [ETFs](https://www.justetf.com/en/academy/what-is-an-etf.html). ### How ETFs track their index Various methods have emerged to replicate the index. The classic method is [physical replication](https://www.justetf.com/en/academy/physical-replication-of-etfs.html). If the ETF directly holds the all securities of the index, this is known as full replication.\ \ However, full replication is not always possible. Thus, further procedures for replicating the index have emerged over time. Especially for very large, illiquid or international market indices, fully replicated ETFs reach their limits. Broad market indices are mostly replicated by computer-assisted optimisation methods that require fewer securities than the original index for replication (sampling).\ \ [Synthetic replication](https://www.justetf.com/en/academy/synthetic-replication-of-etfs.html) allows ETF investors to invest in new markets and investment classes. The ETF does not invest in the underlying markets, but only maps them. The ETF holds a diversified basket of liquid securities. Especially, costs, tax considerations and tracking quality led to the development of this replication method. Synthetic ETFs are able to replicate some indices more efficiently and better through swaps. Asset classes, such as commodities and the money market, were made investable via swap ETFs. ### Replication methods of ETFs in comparison
PhysicalPhysical (Sampling)SyntheticalHybrid
Replication methodFull replicationSamplingSwap basedMix of physical and synthetic replication
DescriptionThe index is replicated 1:1The ETF holds a selection
of securities		The index replicates the index by using a financial derivative (swap)ETF holds shares both directly and via swap partners
UnderlyingsEquities, BondsEquities, BondsEquities, Bonds, Commodities, Money Market (EONIA etc.), Short and Leverage indicesEquities
Typical characteristics
of index components		Liquid securitiesIlliquid securitiesLiquid and illiquid securities, investment restrictions (trade restrictions, taxation), different time zonesLiquid and illiquid securities, investment restrictions (trade restrictions, taxation), different time zones
Typical number
of securities in the index		LowHighLow to highLow to high
Sample indicesFTSE 100, Eurostoxx 50,
Dow Jones 30		MSCI World, MSCI Emerging MarketsMSCI World, MSCI Emerging Markets, Eurostoxx 50, Commodities indices, Short FTSE 100, Leveraged FTSE 100MSCI World, MSCI Emerging Markets, MSCI ACWI IMI, Eurostoxx 50
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