Capped Index

When an index goes in for a bit of dental work. Also, a way to structure an equity index.

An index is a way of tracking the performance of a group of stocks. Think: the S&P 500, the Dow Industrial Average, etc.
Most indices are weighted in some way. Which means that some securities get more emphasis than others. The index doesn't just consist of one share of every stock. Some stocks have more influence...they're more heavily weighted in an index. Typically, this weighting is done by either price or market capitalization.

In a capped index, there's a limit to how much weighting any one stock can have. Even if it gets way ahead of the others in either price or market cap, the stock can't rise above a set weight within the index.

The goal here is to make sure that the index doesn't become overly dependant on any one stock. At that point, it ceases to be a useful tracker of the group and essentially becomes a proxy for the one stock. You might as well skip the middleman and just watch the price of the one stock.

It's like a band where the lead singer gets too famous and eventually the band has to break up. A capped index ensures that the Rolling Stones stay the Rolling Stones, and don't become...Mick Jagger and the Jaggerettes.