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Indices

Definition of Indices

Indices are a collection of financial instruments that measure the performance of those very instruments.

For example, stock market indices like Nifty 50 and Sensex measure the top 50 and 30 stocks by market capitalization.

If indices go up, it generally means that the underlying stocks are performing well. The opposite is true when indices plummet.

By the way, there’s no limit to how many instruments an index can track. The Nifty Smallcap 250 tracks 250 stocks whereas Nifty Bank tracks 12 stocks.

Related Terms

Convertible Bonds

A convertible bond is a hybrid security that’s initially designed to be a debt instrument that pays a fixed interest rate in exchange for a loan. Once the loan’s tenure ends, the holder can decide to take one of either action:

  • Don’t convert bond: face value of the bond is transferred to the holder on maturity
  • Iceberg Order

    An Iceberg Order is used to slice and execute large orders into multiple “legs”. Large orders have the potential to drastically affect stock prices and subsequently investor behaviour.

    That’s why institutional investors or traders with a relatively large buy or sell order place an Iceberg Order, thus masking their total transaction value and effectively going under the radar.

    Brokers and trading platforms offer Iceberg Orders as a feature, which is activated after a certain quantity of scrips or contracts are selected, typically above 100.

    Issue Price

    The issue price is the price at which a company sells its newly issued shares during an IPO. The company that is set to go public will conduct thorough market analysis before deciding the issue price.

    Gold ETF

    A gold ETF is an exchange-traded fund that invests in gold bullion. Every unit of a gold ETF is backed by one gram of gold of assured purity that is held in the physical or demat form (digital).

    Gold ETFs combine the lucrative value of gold with the liquidity of stocks. Thus, gold ETFs track the price of gold bullion and are traded on stock exchanges like NSE and BSE.

    Annual Report

    An annual report is an exhaustive written account of a company’s finances, activities, and other relevant information for the fiscal year.

    Publicly traded companies are required to publish annual reports so that existing and potential shareholders have full transparency into the company’s finances and overall health.

    Averaging Down

    Averaging down means buying more shares when the price drops, thereby bringing down your overall average cost of investing. For example:

    Day 1 (Normal price)

    • Shares bought of XYZ: 10
    • Price of each share: Rs. 1000
    • Total cost of investing: Rs. 10,000
    • Average investment cost: Rs. 1000


    Day 2 (Lower price)

    • Shares bought of XYZ: 10
    • Price of each share: Rs. 900
    • Total cost of investing: Rs. 9,000
    • Average investment cost: Rs. 900


    Averaging Down

    • Initial average cost of investing (Day 1): Rs. 1000
    • New average cost of investing (Day 1 & Day 2): Rs. 950



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