A system by which wages, prices, or the interest and redemption payments on securities are not fixed in money terms, but are adjusted in proportion to a suitable index of prices, such as the retail price index. Similarly, pensions can be linked either to prices or to wage rates. Indexation of prices and wages is intended to stabilize real incomes and income differentials; when applied subject to time lags, it does this only approximately.

A system for making the performance of an investment or unit trust mimic that of a share index. This is done by holding, in proportions approximating to their weights in the index, all the shares concerned or a sufficiently large selection of them.