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When you think of investing in an Indian stock market, you need to have a clear understanding of all the concepts of the same. There are many things to learn in the stock market. Have you ever come across with the concept, “stock index?” Let us have a look at what it actually means.

What Are Stock Indexes?

It is simply an average price for a group of stocks which are larger in quantity. These stocks could be on a particular stock exchange. It could also be stocks across an investing sector. Now how are indexes formed? Well, they are formed from stocks which have something in common. When we say that there is something in common, we mean that there might be on the same exchange or from the same company or industry. Stock indexes offer an overall snapshot of the economic health that exists in a particular industry. There are also another type of index which is known as “market-share weighted” index which is based on the number of shares and not on their total value.

Functions Of Stock Indexes

The most important function of stock index is that they are very useful as an investment tool. Suppose when there is a rise in the index by 2% then the index of the mutual fund will also rise by 2%. So you can expect a rise in cash as it has tremendous advantages of lower costs.

There are different types of mutual funds like passively managed mutual funds which have been showing outperform results in the indexes on a consistent basis. Suppose a mutual fund is based on an index, then it would duplicate whatever holdings the index is based on. This is the main reason you see the BSE or NSE rising by one percentage point when the BSE-based funds rises by one percent.

In today’s life investors get many options to invest in stocks and shares. But if you are a novice investor, then it is very important that you go for an experienced stock market tips provide that is consultant who could guide you in your investment and also tell you more about stock index.



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