The National Stock Exchange Fifty (NIFTY 50) is one of the most prominent stock market indices in India. Nifty 50 tracks the performance of top 50 companies by market capitalisation listed on National Stock Exchange (NSE). Read on to know more about its features, benefits and more.
What is NIFTY 50?
NIFTY 50 is a diversified benchmark index representing the weighted average of the top 50 companies listed on the NSE, covering 13 sectors of the economy. It offers a comprehensive overview of the Indian market's performance and trends.
How does NIFTY work?
NIFTY is a market capitalization-weighted index, where companies with larger market caps significantly impact the index's performance, reflecting the collective performance of the top 50 companies in the Indian market.
How is NIFTY calculated?
The calculation of NIFTY is based on free-float market capitalization. Free-float market capitalization considers only the shares available for trading, excluding those held by promoters. The formula used is:
NIFTY = (Current Market Value of Constituents / Base Market Capital) * 1000
This method ensures that the index accurately reflects market conditions by focusing on actively traded shares.
Types of NIFTY indices
NIFTY 50: This index includes 50 major companies in terms free-float market capitalisation across various sectors, providing a broad market overview.
NIFTY 500: This index comprises top 500 companies in terms free-float market capitalisation, offering comprehensive market exposure for investors.
NIFTY Midcap 150 & NIFTY Smallcap 250: These indices focus on mid-sized and smaller companies, respectively, highlighting emerging business performance.
NIFTY Bank, IT, Metal, Auto, Realty: Sector-specific indices track the performance of companies within these sectors.
Importance of NIFTY
Gauging your portfolio's health
The NIFTY 50 serves as a benchmark, allowing you to compare your portfolio's performance against it and make necessary adjustments.
Feeling the market pulse
NIFTY 50 is a reliable indicator of market trends and investor sentiment, helping you make informed decisions based on the overall economic environment.
Making smarter investment choices
Understanding how NIFTY 50 functions and its components allows you to make strategic investment choices, through direct stock purchases or mutual funds that track the NIFTY 50 index.
How can you invest in the NIFTY 50?
You can invest in Nifty 50 index through passively managed mutual funds like Index funds or Exchange Trade Funds (ETFs) that tracks the NIFTY 50 index. Index funds mimic the performance and portfolio composition of a particular index like Nifty 50. ETFs also follow a passive strategy and replicate the performance and portfolio of a particular index. However, the difference is ETFs are traded on exchanges implying that you need to have a demat account for investing in them. Thus, you can buy and sell Nifty 50 ETF on a real-time basis just like a stock.
Benefits of investing in ETFs and Index funds
Good long-term returns: Nifty 50 TRI index have provided over 16% CAGR returns in the past 20 years (as of June 30, 2024), making them one of the best long-term wealth creators among various asset classes in India.
No fund manager bias: Index funds and ETFs tracking NIFTY 50 eliminate fund manager bias, ensuring your investments reflect market performance.
Lower expense ratio: Index funds and ETFs typically have lower expense ratios compared to actively managed funds, reducing costs for investors.
Market returns: Investing in NIFTY 50 ensures your portfolio captures the overall market returns, benefiting from India's economic growth.
Also Read: Differences between investment and trading
Wrapping up
Understanding NIFTY is essential for anyone looking to invest in the Indian stock market. By grasping what NIFTY is, how it works, and how to invest in it, you can make informed decisions that align with your financial goals.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
Mutual Fund investments are subject to market risk, read all scheme related documents carefully. Axis Bank Ltd is acting as an AMFI registered MF Distributor (ARN code: ARN-0019). Purchase of Mutual Funds by Axis Bank’s customer is purely voluntary and not linked to availment of any other facility from the Bank. T&C apply.
