What is Nifty, and How is Nifty Calculated?

Nifty is the primary index for National Stock Exchange used to track the performance of the nifty 50. Nifty is a combination of national and fifty. It consists of fifty well-established firms belonging to a range of sectors with a good track record in performance. The movement of nifty depends on the price fluctuations of the fifty companies. 

The nifty 50 lets you go through the fifty biggest companies instead of all the companies listed in the NSE by looking at the main indices. These indices allow you to conclude whether the market is up or down. Nifty would indicate a green color when the market is up and red when the stock market is down compared to the previous trading day. 

How is Nifty Calculated?

Nifty is calculated using the free float market capitalization method. Nifty is a weighted average of the free float market capitalization of the fifty companies. You should not get to the complication of calculating nifty as an investor. Instead, your focus should be on the movement of the benchmark indices. 

However, if you want to go through the calculation, you may use a specific formula to calculate the market capitalization, free float market capitalization, and the index value. You multiply the price by the equity capital to get the market capitalization. A company’s market capitalization is the value of a firm that is traded on the stock market.

You can get the free float market capitalization by multiplying the price, equity capital, and investable weight factor. The free-float market capitalization measures the available shares that the public can buy, including the privately and publicly owned shares. Calculating the free float market capitalization helps you to avoid buying all the outstanding shares. 

The index value is an assumptive portfolio of the investment holdings representing a financial market section. The index value is calculated by dividing the current market value by the base market value and multiplying by a factor of 1000. It is used as a benchmark to assess a portfolio’s performance. 

If any stock underperforms consistently in nifty, the stock exchange can replace that particular stock with a constantly well-performing stock. The stock exchange makes the final decision in this regard. Like you can get an overview of the Indian stock market through nifty. Similarly, you can know how the stock market of other nations is performing through their primary indices. 

Why should you invest in nifty 50?

The nifty 50 covers the primary sectors of the Indian economy, giving you exposure to the Indian market in one efficient piece. Investing in nifty allows you to invest in the fifty high-performing companies in their sectors. Most importantly, if you want to invest in the nifty, it would be best to consider putting your money through the index mutual funds. 

Index mutual funds are ideal because you expect predictable returns, and funds will hardly require extensive tracking. You may invest in equities and hardly actively participate in the close management of the funds.