What is Nifty & How to invest in Nifty?

Posted by pawannrpa on October 17th, 2021

The Nifty Meaning is a derivation from the mix of two words, i.e. “National Stock Exchange” and “fifty”. It is an abbreviation of the National Stock Exchange Fifty. It is a collection of top performing 50 equity stocks that are actively trading in the index. However, 51 stocks are currently trading on Nifty. Hence, Nifty is also known as Nifty50 or CNX Nifty.
Nifty is a popular stock index. The National Stock Exchange of India introduced it. This index was founded in 1992 and started trading in 1994. It is owned and managed by India Index Service Products Limited (IISL). IISL is an Indian specialized company which focuses on an index as its focus product. It has a variety of financial products like index funds index futures and options, stock futures and options, etc.

How is Nifty calculated?

Nifty 50 indices calculation uses the float-adjusted and market capitalization method. Here, the level index demonstrates the aggregate market value of the stocks present in it for a specific duration. This particular base duration for the Nifty index is 3rd November 1995. The base value of stocks is 1000, and the base capital is Rs.2.06 trillion

The formula for calculating the index value is as follows – 
Market capitalization = Price * Equity Capital

Free Float Market Capitalization = Price * Equity Capital * Investable Weight Factor

Index value = Current market value / (1000 * Base market capital)

Investable Weight Factor (IWF) is a factor to determine the number of shares available for trading. The index calculation is on a real-time basis as the value of stock also changes daily. 

The formula calculates not only the value but also the changes in the corporate procedures. For instance, changes in corporate can be stock splits, rights issues, and many more. Nifty share market is a benchmark for measurement against all equity shares markets in India. It regularly conducts index maintenance checks. Therefore, this ensures that it is stable and working effectively. This can persist as a benchmark index of the Indian stock market. 

 How to invest in Nifty?

You can invest in the Nifty via Index Mutual Funds and Exchange Traded Funds (ETFs). These funds invest in a basket of stocks that mirror the returns of the index like Nifty or Sensex etc. The main difference between Mutual Funds and ETFs is, the prices of ETFs are updated actively during the day similar to stocks and can be bought and sold at live prices.

On the other hand, the prices of Mutual Funds are updated only at the end of the day and can be bought and sold based on the End of the Day Price.ll

You can also trade in Nifty via Futures and Options.

How is Nifty different from Sensex
As such, there is no main difference between Sensex and Nifty as both targets towards large cap stocks. Both Nifty and Sensex are indices of stock market that indicate the strength of the market. The Nifty reflects the value of National Stock Exchange (NSE) whereas Sensex is the stock market index for Bombay Stock Exchange (BSE).

Nifty is broader as it consists of more listed securities i.e. 50 stocks whereas sensex contains 30 stocks. Also, Nifty is considered as to have a more diversified portfolio when compared to Sensex. More trading is noticed to happen in NSE when compared to BSE.