The Nifty 50 is an index consisting of the top 50 companies in terms of market cap, present on the NSE (National Stock Exchange). These companies can be termed as Large-Cap stable companies which are on top of the list. Buying Nifty directly is not possible as Nifty is not a stock that one can buy. One can get exposure to the Nifty indirectly by some investment lools like ETFs, etc.
Nifty is an index made up of the top 50 companies listed on the NSE (National Stock Exchange). The order of these companies is decided by the Market Capitalization and not by its price. Nifty traditionally consists of 1600 companies but only the top 50 companies are included in the Nifty. All the 50 companies in the Nifty have their own weightage. Therefore the composition of the NIfty keeps changing with the price and weights of each stock. Currently, the highest weightage in Nifty is commanded by HDFC bank which is 10.70% followed by Reliance Industries at 9.51%.
There are some benchmarks that a company has to meet in order to get itself a part of Nifty50, They are
If a company fulfills all of the above criteria then it is eligible to get naturally included in the Nifty 50 index.
Now that you have understood what is the Nifty, the question arises, “How can I buy the Nifty”. There are 2 alternative ways in which one can buy the Nifty indirectly & Directly.
1.From the Cash Market
2.From the Derivatives market
1. Cash Market
Nifty is an Index comprising 50 stocks from different sectors having different weightages. Nifty is not traded as a Stock that one can buy or sell. To buy the Nifty one can buy Nifty ETFs (Exchange Traded Funds) that performs like the Nifty.
Nifty ETFs are open-ended funds that invest in the Nifty50 companies. These ETFs invest in the exact same proportion of the actual composition of the stocks in the Index. The value of 1 ETF is roughly 1/95 or (0.95%) of the current value of Nifty which makes it affordable for retail investors.
Having exposure in Nifty through the cash market is a good option for small & medium investors. The main problem arises for HNI’s (High Net worth Investors) who want to invest crores of rupees at one price. That might lead to a shortage of liquidity in the Cash market. This might lead to an abnormal price fluctuation in the ETFs. To solve this problem, derivatives come into play. One can buy a minimum of 1 LOT (consisting of 75 shares of the Nifty) of Nifty Futures from the derivatives market. The Nifty Future moves exactly like the Nifty with a slight premium to the spot price at some times. The liquidity is extremely high in Future contracts and the overall cost to trade in them is slightly lower compared to ETFs.
The only downside with Futures contracts is that they have an expiry date on which one has to square off the existing positions and make a new position of the next expiry.
As one cannot purchase the shares of NIfty directly as it is an Index. An investor can take exposure in Nifty through ETFs (Exchange Traded Funds) or through Nifty Futures as per the requirement of an individual investor. ETFs are low-cost products where one needs just a couple of hundred rupees to buy Nifty whereas a Nifty Future costs approximately 1.7 lakh. Hence you could buy the Nifty either in the form of ETFs or Futures according to your requirements.
NIFTY plays a huge role in the economy of India and it is one of the major indexes in the National Stock exchange. There are various ways of investing in NIFTY i.e. via derivatives, future contracts, option contracts and mutual funds. Investing in NIFTY derivatives is the best strategy but it is quite risky and requires attention by the investor to track the performance of their investment.