What is Index ?

Meaning of Index

An index is a statistical measure of a change in a group of numbers or data. These data can be obtained from any source, such as company performance figures, price, productivity and employment figures. Economic indices track economic health from various perspectives.

When we talk about the index or index of the stock market, here the index is a way to track the change in prices of a group of shares. Index is the standard for measuring the performance of the shares of the market or an industry based on the prices of the chosen shares.

Types of Indexes

Indices of stock markets like SENSEX and NIFTY track the performance of many powerful companies in the country to evaluate and predict economic trends. SENSEX and NIFTY mainly track the Indian markets. Similarly, the Consumer Price Index, a consumer price index, tracks the variation in prices for various consumer goods and services. The Consumer Price Index is an integral part of calculations for salaries, interest rates, and inflation.

These indexes can also represent the entire market, such as 30 shares of Sensex or 50 stocks of NIFTY or any industry such as a bank index or auto index. The index of shares of an industry is called Sectoral Indices. Sectoral Indices count the performance of the shares of a particular industry.

What is The Importance of Index ?

Often, indices serve as benchmarks from which returns of any portfolio can be compared. Index funds invest in stocks of any index and try to give the same returns as that index. Every index has its own way of counting. You can read in detail how to count SENSEX and NIFTY on our site.

Stock Market Index

Stock market indexes represent the performance of the stock market of a given country and reflect investor sentiment on the state of the economy there. The national indices of some of the world's largest stock markets are the S&P 500 Index in the United Nations, the Nikkei 225 in Japan, the Nifty 50 in India, and the FTSE 100 in the United Kingdom.

Index Funds

Since you cannot invest directly in an index, index funds are created to track their performance. These funds include stocks that are found in that index in their own portfolio. Investors can expect that the Index Fund will perform in the same manner as the market index. An example of a popular index fund is the HDFC Index Sensex Fund which invests in shares included in the BSE Sensex.

Fund managers of mutual funds and ETFs attempt to create portfolios representing the components of a certain index. This gives the investor an opportunity to get a profit equal to the performance of the stock market by investing in the unit.

An index or index helps us understand the past performance of the market and assess future performance and helps investors in making investment decisions.

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