What is Nifty 50? Basics of Nifty Meaning Explained!

They serve as a benchmark for measuring the performance of stocks or portfolios using weighted average, which is the sum of returns expected from a portfolio. Furthermore, in index, stocks do not only belong to a specific industry such as pharma, banks, instead, they are picked up from all the major sectors. Thus, indexes help us in showing the overall picture and not just a specific sector of the stock market. One can also invest in stock indexes through various mutual fund schemes and exchange-traded funds (ETFs). NIFTY, also known as the National Stock Exchange Fifty, is a widely followed benchmark index in the Indian equity markets.

These indices provide insights into the performance of various sectors within the Indian stock market. Nifty stands for National 50 which is an index operated by the national stock exchange.It comprises the top 50 stocks of the NSE. Whereas, stocks is a type of investment instrument that essentially represents an ownership share in a particular company. Changes in corporate-procedures such as stock splits, rights insurance and more are also taken into account. As NIFTY is a benchmark against which all equity share markets in India are considered, it regularly conducts index maintenance checks.

This means each stock’s weight in the index is based on its free-float market capitalisation, considering only shares available for public trading. It excludes shares held by promoters, government, employees, and other strategic partners. The full form of NIFTY is well-known among investors, as it serves as an important benchmark index. It is often used by market participants to track market performance and nifty share price movements.

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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. Now, one stock of Nestle would cost you more than Rs. 17,500, while one stock of Bajaj Finance would cost you over Rs. 6,000.

What is the difference between NIFTY and SENSEX?

1. A stock market index is a statistical measure representing a particular segment or the overall performance of a stock market.
2. As, indices play a crucial role in defining the flow of the stocks in a certain direction and thus, they are considered as the ‘barometer’ of the stock market.
3. It provides investors and analysts with an overview of the market’s performance and serves as a benchmark against which they can evaluate the performance of their investments.
4. Investors and financial managers employ it to assess the portfolio base value of the National Stock Exchange Fifty and compare performance against benchmark equity indices.
5. Other indexes under the Nifty brand include the Nifty 100, the Nifty 500, the Nifty Mid-Cap 150, the Nifty Small-Cap 50, and the Nifty Total Market.

These index Mutual Funds replicate the NIFTY 50, i.e., have a portfolio precisely like the index. So, a NIFTY 50 index fund will have the 50 stocks in the same proportion as the NIFTY 50, and all you need to do is invest whatever amount you want to invest in these funds. Given the nature of the equity market, NIFTY 50 has witnessed many ups and downs since its inception in 1996. There have been years when the index witnessed a decline of 51%, and there have been years when the index climbed by more than 70%. But on a long-term basis, the index has risen significantly, and in the last 15 years, the NIFTY index has delivered an annual average return of 13%. Each of the 50 stocks in NIFTY 50 does not have an equal weightage in the NIFTY 50 index.

For example, how much of the NIFTY 50 index is made up of shares from the banks & financial services sector? This sector often holds a significant weight, impacting overall index movements. 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. Just these 50 stocks represent 65% of the total market capitalization of all the companies listed on the NSE.

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It is also used as a benchmark for financial products traded on the NSE such as fund portfolios, index-based derivatives, and index funds. Index Funds are typically passively managed mutual funds that track and replicate the performance of an index, like NIFTY 50. These mutual funds allocate their funds received to the portfolio of their respective index, thereby generating similar returns to that of the index. You can invest in NIFTY what is nifty index 50 passively by investing in a NIFTY 50 index fund. In such investments, the option of starting a Systematic Investment Plan (SIP) would also be available.

The India Index Services and Products (IISL), a fully-owned subsidiary of the National Stock Exchange Strategic Investment Corporation Limited, owns the stock index. NIFTY is one of the two major stock market indices, the other being the Bombay Stock Exchange’s Sensitivity Index or SENSEX. NIFTY is an umbrella term and includes a host of indices such as NIFTY 50, NIFTY IT, NIFTY Bank and NIFTY Next 50. A stock market index is a statistical measure representing a particular segment or the overall performance of a stock market.

What Are Some Other Nifty Indexes?

The NIFTY calculation formula includes the floating market capitalization-weighted methodology. Free float market capitalization refers to the market value of a company’s shares available for trading in the open market, excluding shares held by promoters, governments, or other strategic investors. The National Stock Exchange periodically reviews and adjusts NIFTY to ensure it reflects the changing market dynamics. The NIFTY 50 is an index of the country’s top 50 companies by market capitalization that are listed on the National Stock Exchange (NSE). It is one of the two most referenced barometers used by investors to track how the “stock market is doing”. The other is the Sensex – a similar index of 30 stocks managed by the Bombay Stock Exchange (BSE).