Updated on March 17, 2023
An ‘index’ is a collection of stocks or other securities chosen from a particular category, sector/s, assets/asset classes or one or more types of industries. The index is prepared with a specially defined calculation methodology. Index is used to measure the performance of securities or stocks in a specific sector of the market.
Examples of Index are BSE Sensex, Nifty 50 and Nifty Next 50 in India, S&P 500 Index of in the US (S&P 500)
The value of an index is determined by the price movements of stocks or securities that are listed on the index. It helps to gauge the performance of investments like mutual funds or ETFs (Exchange Traded Funds) or other baskets of securities which are benchmarked against the Index. ‘Index investing’ is a popular form of investing which entails automatic selection of stocks or securities mimicking a particular Index which the mutual fund/ETF or other investment type seeks to replicate.