While India's business world is made up of thousands of entities like corporations, companies, partnership and sole proprietorship firms, cooperative societies and the one man outfits, only a few hundred are actually listed on the various stock exchanges of the country and of these only 50 large companies actually form the two major market indices, the Sensex (30) and the Nifty (50).
These indices are important indicators of India's economic and financial health. When these indices are soaring consistently, the economy is doing great and when, languishing in the red, these indices announce the dismal state of affairs in the country.
So when you believe in the success of an economy one of the most efficient ways of turning this belief into gains for you is investing in the index of this economy. Very simply, if the economy is going to do well, the stock market index will rise and hence you gain.
An index fund is exactly that. It is a fund that attempts to mirror a stock market index or a sectoral index as closely as possible by investing in the stocks that form that index in the very same proportion. So a nifty index fund would have the same 50 companies that make up Nifty in the same weightage.
1 Comments:
Lot of gyan on this post. Looks like i should have a second read after i know little finance.
Sanjay
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