Market Indexes in India
Bob and Tag explain the "Market Index" and list out the various indexes in India.
If you have hung around or listened to people who are staunch investors, you may constantly hear the term “index”. You may even have heard of words like Nifty or Sensex.
Here, we explain what an index means in finance and explore its different types.
What is a Market Index?
In finance, indexes measure the performance of your investments.
A market index shows you a list of financial assets (like stocks, mutual funds, or securities) considered peak performers in their category. These can be the top 10 or the top 50 of their group.
You can use this index to measure how your stock or mutual fund performs by comparing it with the index.
Here is an example:
You have an investment TCS, and you would like to see how it performs. Consider Nifty to be the index list that can compare your investment.
Now, you can gauge how TCS performs by comparing it with the top performers in Nifty. This way, you can tell if TCS is gaining or losing in the market.
What Are the Types of Market Indexes in India?
So, how do financial institutions come up with such indexes? And how many different variants are there?
Index providers use weighted average methods to calculate the index. And these indexes cover a broad range of financial assets.
Index providers usually consider a category they would like to create and calculate the top gainers and losers in that category. Here are some of the categories:
How to Use Market Indexes?
In the end, an index is a simple indicator of performance. And remember that the assets in an index are usually the top performers of their category. Hence, they can provide the following information:
Understand Market Performance - If the assets in the index are performing poorly, you can tell that the market is down. Similarly, you can tell that the market is on a high if the index is on a high. Therefore, you can use the market index to monitor and decide to buy or sell.
Measure Returns - You can see how your investment performs by measuring it against the index. And this measurement is a quantifiable number or percentage that can help you understand if your investment is doing well against the benchmark.
Abbreviations Used
BSE - Bombay Stock Exchange
NSE - National Stock Exchange
Written by Tag | Edited by Bob