What is NIFTY 50- How it is Calculated & How to Invest in It

Therefore even liquidity in the market is highly concentrated to those 50 stocks. Even though there are 1,300 stocks listed on the NSE, when someone says “the market was up today”, they usually mean the NIFTY 50 index was up. This further means the weighted average performance of those 50 stocks was up. For foreign investors tracking the Indian markets, their first reference point is NIFTY movement and their first few investments in India are usually in NIFTY stocks.

Top Companies by Weight

We will talk about how these top 50 large-cap companies are selected based on their free-float market cap a bit later in this blog. But for now, let’s keep it simple that the NIFTY 50 index is a basket of the top 50 large-cap companies in India. And the index is used as a hypothetical portfolio that can reflect the overall movement in the Indian stock market.

It is a blended word – National Stock Exchange and Fifty coined by NSE on 21st April 1996. NIFTY 50 is a benchmark based index and also the flagship of NSE, which showcases the top 50 equity stocks traded in the stock exchange out of a total of 1600 stocks. Studies have shown that a stock price rises on the news of its inclusion in a stock market index. Moreover, the stock price may crash on removal from the stock market index. In simple terms, the Nifty 50 weeds out stocks of non-performing companies from its portfolios while replacing them with solid performers. The indices simply work on the basis of picking the best stock out from a huge list of various segments and then, put them into one form of basket such as NIFTY 50 or Sensex.

What Is Nifty, Types Of Indices, And What They Mean

The NIFTY share market index is a benchmark standard against which all equity markets in India are measured. Therefore, NSE conducts regular index maintenance to ensure that it remains stable and persists as the benchmark in the Indian stock market context. Thematic indices is another calculation method used by the NSE to measure the performance of companies that represent a movement in a specific theme.

By investing in the NIFTY 50 index, you get to invest in 50 leaders in their sectors. So you give yourself a great chance to accumulate enormous wealth in the long run. And investing in the NIFTY 50 index can be convenient, easy, and cost-effective if you invest through index Mutual Funds. If you invest directly in stocks, one of the significant challenges is the amount of money you require to replicate the NIFTY 50 index. You cannot buy a fraction of stocks in India, which means that you must purchase a complete stock and not a part of it.

1. Nifty broad market indices consist of large, mid and small liquid stocks of companies listed on the NSE.
2. These are a type of mutual fund with a portfolio comprising stocks, bonds, indices, currencies, etc. and are created to match/track the components of a market index such as the NIFTY.
3. For foreign investors tracking the Indian markets, their first reference point is NIFTY movement and their first few investments in India are usually in NIFTY stocks.
4. Investment Flexibility – The flexibility of investing in NIFTY 50 via index funds is not limited to low investment amounts through SIP.

This list is reviewed every six months when companies are removed and added to the index. The NSE gives the general public four weeks notice of the changes to be made. This is important for many baskets and financial products that are built around owning NIFTY stocks so they can start rejigging their portfolio. No Need To Worry About Rebalancing – When you invest in a NIFTY 50 index fund, your money is managed by a fund manager who maintains it in the same exact proportion as the NIFTY 50 index. Any increase or decrease in the weightage of a stock is done by the fund manager.

Nifty is a stock market index used by the National Exchange of India (NSE) to track benchmark performance of the companies listed on the NSE—including NIFTY 50, NIFTY Next 50, and other key indices. Indexes whether it is NIFTY 50 or Sensex, both are useful as they serve as a solid benchmark against which helps to measure the investment performance of a given portfolio. Indexes also provide an easy snapshot of an overall market sector or overall market sentiment, without analyzing every single stock in that index.

How can I invest in the NIFTY 50 index?

Our experts suggest the best funds and you can get high returns by investing directly or through SIP. Download Black by ClearTax App to file returns from your mobile phone. The sensex movements are tracked regularly which helps in analyzing the overall growth, industry-related development.

Below are the criteria which are used in selecting the 30 stocks of the Sensex:

The market value is divided by the base market capital multiplied by the base value of 1,000 to determine the index value of Nifty daily. Well, both NIFTY 50 and Sensex are the most prominent indexes of India. However, the volume and number of stocks are higher on NIFTY 50 as compared to the BSE. The top 5 sectors in the index today are financial services, information technology, oil and gas, FMCG, and automobiles. Over the years, the index has become more concentrated – in 2010, the top 5 sectors represented 60% of the NIFTY stocks. Just like with the churn in stocks, the churn in sectors is also heavy.

This process removes the human bias while making investment decisions, and the fund can be an excellent addition to your portfolio. Low Investment Amount – Since index funds pool money from several investors, Mutual Fund companies allow you to invest a smaller amount of money. You can start investing with as low as Rs. 500 a month through SIPs and can be a part-owner of all the 50 stocks of NIFTY 50 in the same proportion as the index. Base market capital is the weighted market cap of all 50 index companies in the base period. The NIFTY 50 index is a free float market capitalisation-weighted index. Save taxes with Clear by investing in tax saving mutual funds (ELSS) online.

The current market cap is the weighted market cap of all 50 companies. It is calculated by multiplying free float shares with the market price of the share. Free float shares represent the total number of outstanding shares, excluding those held by promoters, government, trusts, etc.

In case any new additions and eliminations are done, the companies in question are informed through a notice four weeks before reconstitution. However, you must pay attention to the tracking error, which is the deviation in the index funds returns from the benchmark index, in this case, the Nifty 50. It is caused by the inability of the index mutual fund scheme to buy and sell the underlying stocks of the index.

So, you don’t need to worry about rebalancing or maintaining stocks in the same exact proportion as the NIFTY 50 index. Investment Flexibility – The flexibility of investing in NIFTY 50 via index funds is not limited to low investment amounts through SIP. You can increase or decrease the amount you are investing at any time you want and by any amount you want. This makes the process of investing extraordinarily convenient and hassle-free. Besides vast amounts of money, you will also need to buy all the 50 stocks according to their actual weightage in the index and keep up what is nifty index with the weightage that changes daily.