- Date : 24/12/2021
- Read: 3 mins
Nifty 50 is an index investing in the top 50 companies in the market. Read on to find out what it’s all about.
Introduced by the National Stock Exchange (NSE) in 1992, the Nifty 50 is an index containing the top 50 stocks trading in the stock market. It comprises the top-performing companies in different sectors of the economy.
How are stocks picked for the Nifty 50 index?
The index is created with the top 50 stocks in terms of trading volume and price. For a stock to be a part of the Nifty 50 index, the following eligibility parameters are a must:
The stock should be listed on the NSE, both in the spot market and in the derivatives market.
The stock should be highly liquid, meaning it should be easy to trade on the market.
Also Read: 25 Stock Market Terms For Beginners
How does the index work?
Stocks that fulfil the aforementioned criteria and trading in the top 50 positions are picked to create the index. The weightage of each stock is done as per its market capitalisation. Companies with higher market capitalisation are given higher weightage.
Once the index is created, it gives you a ready-made portfolio of the top stocks to invest in. Moreover, the index is regularly reviewed and rebalanced to ensure the stock weightage. If any stock loses the top 50 position due to delisting or a fall in the market capitalisation, the stock is replaced with another stock that moves into the top 50 ranking.
Thereafter, depending on the value of the underlying stocks, the value of Nifty 50 changes. If the values rise, the value of the overall index rises; and if the market enters a volatile phase, the index value might fall.
How to invest in Nifty 50?
Investment in Nifty 50 can be done in either of these two ways:
- Invest directly in the stocks held in the index and in the same proportion.
- Invest in an index mutual fund whose benchmark is the Nifty 50 index. This would help you invest in a ready-made portfolio managed by experts.
What are the benefits of investing in the Nifty 50 index?
The Nifty 50 index is popular among investors because of the following reasons:
- Good return potential
- Investment into trusted and leading companies
- Lower volatility since blue chip companies have the resilience to weather short-term volatility and bounce back from a bear market
- Tax benefits on long-term investments
- If you choose index funds, you can invest through affordable SIPs and don’t have to rebalance your portfolio with changing market dynamics.
So, understand what Nifty 50 is all about and then invest in it to get exposure to the leading companies on the stock exchange.