What is Index?
- What is Index ,
- how do they count and
- what is their importance?
It is easy to know how Index is structured in economics or finance and where it is used ?
What is Index?
Index is a statistical measure to count the change in index numbers or group of data. These data can be obtained from any source, such as company performance figures, value, productivity and employment figures. Economic indices track economic health from various perspectives.
Index meaning
When we talk about the Index or index of the stock market, the index here is the way to track the change in the prices of a group of shares. The standard of measuring the performance of the prices of the market or shares of an industry based on the prices of selected shares is called Index.
Types of Indexes
Stock markets indices like sensex and NIFTY track the performance of many powerful companies in the country to evaluate and predict economic trends. The Sensex and NIFTY mainly track Indian markets.
Similarly, Consumer Price Index i.e. Consumer Price Index tracks the variation in prices for various consumer goods and services. The Consumer Price Index is an integral part of the calculations for pay, interest rates and inflation.
Types of Indices in Stock Markets
These indices can also represent the entire market, such as a 30-share Sensex or a 50-share NIFTY or an industry, such as a bank index or an auto index.
The index of shares of an industry is called Sectoral Indices. The performance of the prices of shares of a particular industry is counted in the Sectoral Indices.
What is the importance of Index?
Often, indices act as benchmarks, thereby comparing returns of any portfolio. Index funds try to return the same returns as any index by investing in shares. 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
The stock market Index represent the performance of the stock market of a given country and reflect the investor sentiment on the state of the economy there. Some of the world's largest stock markets are the National Index of the S&P 500 Index at 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 exactly include shares that are found in that index in their portfolios. Investors can expect Index Fund to perform the same way as the market index.
HDFC Index Sensex Fund an example of a popular index fund that invests in shares involved in BSE Sensex.
Fund managers of mutual funds and ETFs try to create portfolios representing components of a certain index. This gives the investor an opportunity to gain the same profit as the stock market performance by investing in the unit.
Indices or indices help us understand past market performance and assess future performance and help investors make decisions to invest.
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