Market Indices -benchmark,sectoral and market cap

In the simplest terms, a market index can be defined as indicator of the value of a basket of stocks. Now this basket, can be a broad one, like in the case of S&P 500, one of the most followed equity indices or a smaller one like nifty 50,one of the two main equity indices in India.

Investors track the value of indexes to gauge the value of different segments of the market.

TYPES OF INDEXES

1) Benchmark index: Self explanatory to their name,these are indexes which are generally used to determine the value and state of the whole market in general. These funds can basically be used to compare the returns of a mutual fund or a portfolio. And vividly, it becomes important to be able to evaluate the performance of their investments through these benchmarks.These benchmarks are created across all the asset types.
For examples,
nifty 50,and the bombay stock exchange sensex in India.
Standard and poor 500 in the United States.All of these are the barometers to the markets.

2) Sectoral indexes: these indexes contain companies that are used to determine the performance of a specific sector.They have sub sectors too, differentiating them from the rest of the securities.
For example,
NIFTY bank index, which comprises the largest Indian banking stocks,and the most liquid stocks, which largely captures the performance of equity in the banking sector.

3) Market cap based indexes: these are the indexes which select their underlying securities on the basis of their market capitalisation. They educate investors about variety of companies, both large and small. There are large, mid, and small caps.

In India,
Large caps lie over a market capitalisation of 20,000 crores
Mid caps lie above 5,000 crores and below 20,000 crores and
Small caps lie below a capitalization of 5,000 crores.

CO-WRITTEN BY VANSH SINGLA