Nifty is a term from the stock market, just like Sensex. It is the index of the National Stock Exchange (NSE). It is popularly known as the Nifty 50 because a total of 1600 stocks were included in the top 50 equity stocks. The term Nifty 50 dates back to April 1996. These 50 listed companies are very significant, with substantial market shares.
Nifty is the second-most significant index after the BSE Sensex. IISL (India Index Services and Products) owns the NSE Nifty.
The Nifty stocks belong to a few major sectors of the Indian economy which include: pharmaceuticals, cement, pesticides, automobiles, consumer goods, financial services, entertainment, energy, metals, and information technology.
Nifty indexes are calculated every 6 months and the screening of companies happens quarterly.
Selection requirements of Nifty
The company concerned should be based in India and it should be registered with the National Stock Exchange. It must have traded 100 percent and had an average free-float market capitalization during the past six months. Stocks should also represent high liquidity.
Procedure for calculation of Nifty
It is calculated by professionals at NSE, based on market capitalization and free float. A specific base period is also chosen during the calculation process and a set formula is used to calculate it time and again. It is mentioned as follows:
Nifty Index value = Current market value/ base market capital * 1000
This index has significant national significance. Therefore, it is calculated regularly to maintain economic and financial stability in the country. It is also seen as a benchmark for mutual funds, so the importance of the Nifty stays intact.
Earlier, Nifty was calculated on a full market capitalization methodology, however, in June 2009, it was changed to a free-float methodology.
10 major companies listed under Nifty
– Tata Steel (Metals sector)
– Coal India Ltd. (Energy Sector)
– Bajaj Auto (Automobiles sector)
– Asian Paints (Consumer goods)
– SBI (Banking and finance)
– IndusInd Bank (Banking and finance)
– Tata Motors (Automobile sector)
– Eicher Motors (Automobile Sector)
– YES Bank (Banking sector)
– Ibull Housing Fin (Finance sector)
How to invest in Nifty?
There are various ways to invest in Nifty. This can be accomplished through investment in stocks or mutual funds. Stocks should be bought in the same percentage as their weightage in NIFTY50. The investment can be made by visiting the official website of AMC and filling out the details there, or by investing directly. Details like e-KYC (know your customer form), PAN card details, bank details, date of birth, etc. are required to be filled in.
Investing in futures is also a viable option. Apart from futures, options contracts can also be used to make investments. But the premiums for call options are high.
If a person is looking for investing on a short-term basis, then derivatives are a wise option, since they have an expiry period of 3 months.
How is Nifty different from Sensex?
- The Nifty index belongs to the National Stock Exchange (NSE), whereas the Sensex belongs to BSE (Bombay Stock Exchange).
- Nifty comprises the top 50 companies on its radar, whereas Sensex includes 30.
- The base value used for calculation in the case of Nifty is 1000, but it’s 100 for Sensex.
- The base year for the calculation of Nifty is 1995, whereas for Sensex it is 1978-79.
- Nifty is a newer index compared to the Sensex. This is because Nifty was launched in 1996, whereas the Sensex was launched in 1986.
- Also, while the Nifty includes 24 sectors, the Sensex includes only 13 sectors.
- Further, the full form of Nifty is National and Fifty, but the Sensex is a sensitive index.
Nifty 50 Index Fund
The Nifty 50 Index Fund invests in the equity shares of the top 50 Indian companies by market capitalization. Companies like Reliance Industries, HDFC Bank, Hindustan Unilever, Infosys, Tata Consultancy Services, etc. are considered to be the most reliable as far as the Nifty 50 Index Fund is concerned.
The following reasons make this index funds special:
– Flexibility and affordability:
It is flexible as people have the choice to either invest a lump sum amount or at regular intervals. The regular interval option can be exercised through the medium of a SIP i.e. Systematic Investment Plan. The intervals can be monthly, quarterly, etc. This allows those with less money to also invest and gain.
-Diversification of investments:
There are shares of companies in various sectors that are available for investment. As a result, investors have a broad range of options to choose from, and the risk involved in their investments is also diversified.
Importance of Nifty support and Nifty resistance
It is very important to be prudent while taking stock market decisions. Thorough research and analysis of the market are required before investing hard-earned money in the stock market. There is no fixed strategy to deal with it and one needs to map out their strategy. The possibility of some risk is always there. There can be gains or losses too. The general rule of thumb is that it is preferable to invest in Nifty when the economy is performing well. Identifying the area of profit requires analysis of the right stock and the right market.
A benefit of Nifty is that there is no DEMAT cost. However, getting good or bad news has a certain probability. Day trading options are also available. But it should be exercised when you have a firm grasp of the market’s dynamics. Some people earn huge profits by investing in Nifty stocks. However, the opposite is also possible.
Conclusion for NIFTY
Today, investing in Nifty has become safer and more secure. Identity is verified before investors are allowed to trade shares of top companies. The process has become more transparent with increasing digitalization. However, a careful and in-depth analysis of market trends is required before investing in Nifty. Initially, family members and friends who invest in the stock market can be consulted. This can help us understand the functioning of derivatives and mutual funds better. As they say, some risk is always required to achieve the highest heights. Happy investing!