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Economy
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Income per capita
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Indifference Curve
An indifference curve is a graph showing combination of two goods that give the consumer equal satisfaction and utility.
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Index
Tracking returns on your investment is one of the primary methods to know if the investment is giving you a sufficient return. Tracking different assets allows you to check the performance of various assets. An index is a standardized way to track the performance of a group of stocks, assets, etc.
What is an index?
An index is used to track the performance of equity or other assets. A basket of securities makes up the index used to track the performance. Indices can be broad-based or track the performance of specific sectors/stocks etc. For example, the Nifty is a broad-based index which tracks the performance of the top 50 stocks listed on the National Stock Exchange (NSE). The indices can also be of specific sectors, like the Nifty IT index, which tracks the performance of the top IT stocks listed on the National Stock Exchange (NSE). Other indices include Nifty Small Cap 100 Index, Nifty Mid Cap 100 index, Nifty Realty Index, Nifty FMCG index, etc.
Features of an index
The features of an index are:-
- An index measures the price performance of a basket of stocks/securities.
- An index is used as a benchmark to track the performance of a specific set of securities and compare the returns generated by a mutual fund, portfolio manager, etc.
- Index ETF funds are used to invest in a specific list of securities tracked by the index. For example, the Nippon India ETF Nifty BeES ETF is used to track the performance of Nifty stocks and invest in the index.
- Indices can be broad-based, which track the entire market, or sectoral indices which track a particular sector. The index can also be based on the market cap of the stocks they track, for example, the Nifty Small Cap 100, Nifty Mid Cap 100, etc.
Need of Indexes
The needs for indexes are immense. Some of the advantages are given below:-
- Indexes can track financial data like the interest rates, inflation, manufacturing and services output, stock market returns, etc.
- Passive index investing can be done via indexes. ETFs are used for these purposes.
- Indexes can be used to track economic data, like the CPI is used to track consumer inflation, WPI is used to track wholesale price inflation, PMI or the Purchasing Manager's Index is used to measure economic activity, etc.
- Indexes are used to track portfolio returns as compared to index returns.
Basics of index investing
Index investing refers to the concept of investing in an index. Indexes are used to benchmark portfolio or mutual fund returns and understand the performance as compared to the index. ETFs are constructed which track the performance of an index. Nippon India ETF Nifty BeES is an example of an index ETF to invest in the Nifty index.
Index investing is a good way to invest in the market without deciding on specific stocks or securities. Index funds can be invested with very low costs, and you would not have to face the brunt of the underperformance of specific stocks. If you don't have the time or skills to select specific stocks, index investing is a good way to get good returns with very low risk. Also, the fees are less compared to actively managed mutual funds. In the long run, as per a report by SPIVA, 82% of large-cap mutual fund schemes underperformed the index in the preceding five years. Thus, it raises many questions regarding using actively managed funds to beat the markets. You can also get good risk-adjusted returns with the help of index funds.
Index Examples
Examples of indexes in the Indian stock markets include:-
- NIFTY Mid cap 100
- Nifty 100
- Nifty 200
- BSE Sensex
- Nifty 50
- Nifty 500
- Nifty Small cap 250
- NIFTY BANK
- NIFTY AUTO
- NIFTY FMCG
- NIFTY IT
- NIFTY METAL
These are just some examples, and there are many more indexes in the Indian stock markets.
What is index investing?
Index investing is investing in an index without choosing the specific securities. You can invest in an index and get the returns of the index. Index investing is done via index ETFs. For example, the Nippon India ETF Nifty BeES is an index that tracks Nifty's performance. Index investing can be beneficial if you don't have the time or the skills to select the correct stocks or securities. Also, if you feel that the fee charged by an actively managed mutual fund does not justify the returns, you can use index funds to get the market returns.
Why do we need an index?
Indexes are used for various reasons like:
- Indexes can track economic data like inflation, interest rates, manufacturing and services growth, etc.
- CPI inflation, WPI inflation, PMI index, etc., are some indexes used to track economic activity.
- Index investing is one of the advantages of index. It can be used to get market returns.
- Indexes are used to benchmark portfolio, or mutual fund returns to the index returns.
This helps us understand whether the portfolio is beating the market. If yes, these returns can prove the time, effort, and fee spent on getting the market-beating returns. If not, index investing might be a good way.
Is there an index in India to track the performance of small companies?
There are various indexes to track the performance of small companies. You can use these indexes to track the performance of small companies with respect to the Nifty or other indexes. The indexes are: -
- NIFTY SMLCAP 100
- NIFTY SMLCAP 50
- NIFTY SMLCAP 250
What are some of the sectoral indexes in Indian stock markets?
Some sectoral indexes to track on the Indian markets are:-
- NIFTY BANK
- NIFTY AUTO
- NIFTY FIN SERVICE
- NIFTY FMCG
- NIFTY IT
- NIFTY MEDIA
- NIFTY METAL
There are many other sectoral indexes to track the particular sectors.
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- INDEXTRACKINGWHAT IS INDEX
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Income per capita
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Indifference Curve
An indifference curve is a graph showing combination of two goods that give the consumer equal satisfaction and utility.
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