Introduction
Gone are the days when investing meant buying and selling individual stocks. The investment world has seen many changes over the decades, and now there is more to investing than just stock trading. An investment method that is steadily gaining popularity these days is an index fund.
Index funds mimic the performance of an underlying stock market index. There are several index funds, but the most popularly tracked market indices are the Nifty Total Market Index and the Nifty 50.
If you want to know about these indices and why they matter to you, you have come to the right place!
In simple words, a market index represents not just the market activity but the prevailing market sentiment. It represents how market activity can affect your stock performance. It is important to understand both these indices to get insight to make better investment decisions. To understand what these indices stand for and how they differ, read on.
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What is the Nifty Total Market Index?
The Nifty Total Market Index or the Nifty Total Stock Index measures the Indian equity market's performance. This broad-based index tracks the performance of all companies listed on the National Stock Exchange (NSE), including the Nifty 50. A free-float cap method determines the individual weightage of each stock listed on this index. This index is rebalanced twice yearly to ensure transparency and adjust any liquidity changes.
Investing in this index offers you the obvious benefit of diversified exposure to all companies listed on the NSE. This thereby reduces the risk of concentration. You can use this as a benchmark to evaluate your market performance and asset allocation, which includes the entire equity segment.
What is Nifty 50?
The Nifty 50 index includes the 50 best-performing, largest, and most liquid companies in India. It is a perfect representation of the equity market across all sectors and their performance. NSE's subsidiary, NSE Indices Ltd, calculates this index using a free-float capitalisation method. The index weightage of each stock listed on Nifty 50 is determined by its free-float market cap and is reviewed and rebalanced twice a year.
A benefit of investing in this index is that it automatically offers you exposure to the country's top-performing stocks. This ensures high liquidity, resulting in lower transaction costs.
Nifty Total Market Index vs. Nifty 50
The primary difference between these indices is related to their constituents. The Nifty 50 tracks the performance of only the top 50 Indian companies, while the Nifty Total Market Index includes the entire country's equity market.
Here are the unique features of both these indices to understand how they differ.
Disclaimer: Please bear in mind that the performance of these indices is not consistent due to market volatility. Therefore, carefully check all investment-related documents, news, and trends to make smart investments.
Conclusion
The Nifty Total Market Index offers broad exposure to the diversified Indian stock market, while the Nifty 50 includes high-performing stocks. Both these segments provide unique benefits. Before you decide which one to go with, consider your financial objectives, cost considerations, and risk tolerance. After all, investing is about making calculated financial decisions that help you achieve your financial goals.
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