Short answer: Securities lending means a fund lends some of its shares to other market participants for a fee, and the income goes back to the fund. In the Form N-CEN reports funds filed with the SEC (2025 Q3 to 2026 Q2), two-thirds of index funds lent securities and earned about $1.9 billion in total, but the typical lending fund earned only about 0.008% of its assets.
Index funds own enormous piles of stock that mostly just sit there. Many of them put those shares to work by lending them out for a fee. The income goes back to the fund, where it can quietly offset part of the fund’s costs.
It’s one of the least-known parts of how index funds operate. So we looked at what index funds themselves report about it to the U.S. Securities and Exchange Commission: how many lend, how much they earn, and whether it matters to you.
The short version: two-thirds of U.S. index funds lent securities in their latest reporting year, earning about $1.9 billion in net income between them. For most funds, it’s a rounding error. For some small-company and specialty funds, it’s a real source of return.
What securities lending is
Investor.gov, the SEC’s investor education site, defines it simply: “Securities lending is the market practice where securities are transferred temporarily from a securities lender to a securities borrower for a fee” (Investor.gov).
For a fund, that means lending some of the stocks or bonds it owns, usually to banks and brokers who need them, for example to cover short sales or settle trades. According to the SEC’s Division of Investment Management, a fund whose policies allow it “may lend out a portion of its portfolio securities to generate additional income” (SEC).
The borrower doesn’t just walk away with the shares. It has to post collateral “in an amount at least equal to the value of the borrowed securities, marked to market daily,” typically cash or U.S. government securities, according to the same SEC page. The fund keeps the collateral until the shares come back.
Why index funds are natural lenders
Index funds hold their stocks for a long time and trade very little. That makes them ideal lenders: the shares are sitting in the portfolio anyway, and lending them doesn’t change what the fund owns or how closely it tracks its index. When the fund needs the shares back, it recalls them.
What we looked at
Every registered fund files an annual report with the SEC called Form N-CEN. Its securities lending section asks, among other things: “Is the Fund authorized to engage in securities lending transactions?”, “Did the Fund lend any of its securities during the reporting period?”, “Provide the monthly average of the value of portfolio securities on loan,” and “Provide the net income from securities lending activities” (SEC, Form N-CEN).
We took each fund’s most recent N-CEN from filings made between the third quarter of 2025 and the second quarter of 2026, using the fund’s own answer on whether it’s an index fund, and excluded money market funds. That’s the same census behind our count of how many index funds there are. To compare funds of different sizes, we divided each fund’s net lending income by its reported average net assets. Those percentages are our own calculations.
The headline numbers
| Index funds | Other funds | |
|---|---|---|
| Funds in our count | 2,536 | 9,351 |
| Allowed to lend securities | 88% | 63% |
| Actually lent securities during the year | 67% | 33% |
| Total net income from lending | about $1.9 billion | about $0.8 billion |
| Median net income, per lending fund | about $45,000 | about $26,000 |
| Median income as a share of fund assets | 0.008% | 0.005% |
A few things stand out:
- Index funds lend far more often than other funds. Two-thirds of index funds lent securities during the year, compared with a third of other funds.
- They earn more of the money. Index funds, which hold roughly half of long-term fund assets, earned about 70% of all the lending income reported by the funds in our count.
- But for the typical fund, the amounts are small. The median index fund that lent securities earned about 0.008% of its assets, less than one hundredth of a percent. The typical lending index fund had only about 1.3% of its assets out on loan on average.
Who earns the most
In dollars, the biggest earners are, unsurprisingly, the biggest funds:
| Fund | Net income from securities lending | As a share of average net assets |
|---|---|---|
| Vanguard Morningstar Total Stock Market Index Fund (formerly Vanguard Total Stock Market Index Fund) | about $194 million | 0.010% |
| Vanguard Total International Stock Index Fund | about $172 million | 0.035% |
| iShares Core MSCI Emerging Markets ETF | about $83 million | 0.097% |
| Vanguard Extended Market Index Fund | about $82 million | 0.104% |
| iShares Russell 2000 ETF | about $70 million | 0.104% |
As a share of assets, the pattern is different. Among index funds with more than $5 billion in average net assets, the highest lending income relative to size came from funds like the Fidelity Nasdaq Composite Index Fund (about 0.19%), The Communication Services Select Sector SPDR Fund (about 0.16%) and the iShares MSCI Taiwan ETF (about 0.15%).
Small companies are where the money is
Lending income depends on demand from borrowers, and borrowers mostly want shares that are hard to find: smaller companies, heavily shorted stocks and some international markets. Shares of the giant companies that dominate the S&P 500 are easy to borrow, so they earn very little.
The data shows this clearly:
- Small-cap index funds that lent securities earned a median of about 0.036% of assets, compared with about 0.007% for other index funds. That’s roughly five times as much.
- S&P 500 funds earn very little. The Fidelity 500 Index Fund reported about $16.3 million of lending income, around 0.002% of its assets. The Vanguard 500 Index Fund reported about $10.0 million, under 0.001% of its much larger asset base.
- Index ETFs that lent earned a median of about 0.011%, against about 0.004% for index mutual funds that lent, partly because ETFs cover more specialized corners of the market.
By type of fund
Grouping the lending index funds by the words in their names (so the categories are approximate):
| Type of index fund | Funds that lent | Median lending income as a share of assets |
|---|---|---|
| U.S. stock | 1,067 | 0.005% |
| International stock | 390 | 0.015% |
| Bond | 245 | 0.009% |
International and bond funds tend to earn a little more relative to their size than U.S. stock funds, because many U.S. large-company shares are plentiful and cheap to borrow.
A concentrated business
Lending income is concentrated in a few very large funds. The ten biggest earners account for about 45% of all the lending income reported by index funds. At the other end, only 148 index funds earned 0.10% of their assets or more, and 304 earned at least 0.05%. For the great majority, the income is measured in thousandths of a percent.
Does it matter to you?
For most investors in broad index funds, not much. A lending income of 0.008% a year is less than a dollar on every $10,000 invested.
But in some funds it’s a meaningful offset. When a small-cap fund earns 0.10% a year from lending, that can cover a large part of a low expense ratio. It’s one of the reasons some index funds occasionally match or even beat their index before fees, which we discussed in our article on tracking difference.
It’s also a reason why comparing funds only by expense ratio can miss something. Two funds with the same fee can deliver slightly different results partly because one earns more from lending than the other.
Who keeps the money?
Lending isn’t free to run. A lending agent, often a bank or an affiliate of the fund company, finds borrowers, manages collateral and handles the paperwork, and it’s paid out of the lending revenue. N-CEN asks funds which kinds of payments they make to their lending agent:
- A revenue-sharing split, where the agent keeps a percentage of the lending revenue, was reported by 1,543 of the 1,702 index funds that lent.
- A cash collateral reinvestment fee, for investing the cash posted by borrowers, was reported by 861.
- An administrative fee was reported by 214.
The figure funds report as “net income from securities lending activities” is what’s left for the fund after these arrangements. The split varies from company to company, and some fund companies use an affiliated lending agent. A fund’s statement of additional information and annual report describe its arrangement in more detail.
What are the risks?
Securities lending is generally low-risk for funds, but not risk-free:
- The borrower might not return the shares. The collateral is there to cover this, and, according to the SEC, lending agents typically “indemnify funds against the risk that the borrower will fail to return the borrowed securities.”
- The cash collateral has to be invested somewhere. The same SEC page notes that lending agents “do not indemnify funds for losses incurred in connection with cash collateral reinvestment,” which is why that reinvestment is usually limited to “short-term, highly liquid instruments.”
- Voting rights. While shares are on loan, the fund can’t vote them unless it recalls them.
In our data, borrower failures were rare. N-CEN asks whether a borrower failed to return securities on time with the result that the fund liquidated collateral or was otherwise adversely affected. Among the 1,702 index funds that lent, only 2 reported liquidating collateral and 2 reported being otherwise adversely impacted.
How to find out if your fund lends
- Check the fund’s statement of additional information (SAI) or annual report. Funds that lend describe the program and usually report lending income in their financial statements.
- Look at the fund’s N-CEN filing on EDGAR. The securities lending section shows whether it lent, the average value on loan and the net income.
- Put the income in context. Divide the lending income by the fund’s assets to see whether it’s a rounding error or a meaningful offset to fees.
Common questions
Does lending change what my fund owns? No. The fund still owns the shares and keeps their economic benefit, including the value of dividends, which borrowers typically pay back to the lender. It just can’t sell or vote them until they’re returned.
Should I avoid funds that lend securities? Not necessarily. For large, well-run fund families, lending is a routine, tightly collateralized activity, and the income benefits shareholders. What matters is that the fund discloses how it works and who keeps what share.
Why don’t all index funds lend? Some aren’t authorized to, some hold securities that few people want to borrow, and some decide the income isn’t worth the operational effort. In our data, about 12% of index funds aren’t authorized to lend at all, and about a quarter of those that are allowed didn’t lend during the year.
The bottom line
Securities lending is how many index funds turn idle shares into a small stream of income. For broad, large-company funds like S&P 500 funds, that income is tiny. For small-company and specialty funds, it can offset a noticeable part of the fund’s costs. It’s not a reason to pick a fund on its own, but it’s part of the reason two low-cost index funds tracking similar markets can end up with slightly different returns.
This article is general information based on public filings, not personal advice. See our Financial Disclaimer.
Sources and data notes
- SEC, Form N-CEN data sets, 2025 Q3 to 2026 Q2: securities lending authorization and activity, net income from securities lending, average value on loan, payment types to lending agents, borrower failures, index fund and ETF status, and average net assets. Each fund’s most recent report in the period; money market funds excluded. Ratios to assets and small-cap groupings (based on fund names) are our own calculations.
- SEC, Form N-CEN: wording of the securities lending questions.
- SEC, Division of Investment Management, Securities Lending by U.S. Open-End and Closed-End Investment Companies (October 11, 2017): collateral, indemnification and cash collateral reinvestment.
- SEC, Investor.gov, glossary: Securities Lending.
Data as of the 2026 Q2 SEC data sets. Sources checked on September 30, 2026.