How can I buy the Nifty?

Short Answer

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.

Detailed Answer

What is the Nifty?

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

  • The company should be originated in India and registered with the NSE.
  • There should be high liquidity in the shares of the company.
  • The Free-Float Market Cap should be 1.5 times more than the smallest company in the Index.
  • The company should have to be traded continuously for the last 6 months.

If a company fulfills all of the above criteria then it is eligible to get naturally included in the Nifty 50 index.

How can I buy the Nifty?

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.

2. Derivatives

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.

Conclusion

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.

Tagged With: National Stock ExchangeETFFutures ContractNiftyNifty Futures
Categories: Investment
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Discussion (1)

    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.

Related FAQs

Are ETFs only for stocks?

ETFs are a financial instrument made to track an underlying asset and provide similar returns based on the performance of the underlying. ETFs are listed on stock exchanges which make it easier to buy and sell at desired prices. ETFs are not only limited to stocks but cover a wide range of investment avenues like Commodities, Bonds, etc.

Why are ETF or Exchange Traded Funds not popular in India?

Exchange traded fund is a freely marketable security which tracks a particular index, commodity, bonds or combination of assets. they aren't popular as there is no additional tax incentives, not enough liquidity, under performs most of the time, lack of choices, lack of institutional interest, costs are low but not enough and lack of awareness.

Can I buy stock when the market is closed?

No, it is not possible to purchase any stock when the market is close. Although, you can still place an order even when the market is close.

Can I buy 1 share of stock in India?

Did you ever think of investing in stock market? Can you buy a single share? Yes, you can buy one share of stock in India. There isn't any reason why you can't do so. Let's see how is it possible.

What are the main differences between forward and futures contracts?

In several ways, forward and futures contracts are similar: both include an arrangement to trade assets at a future date, and both have values derived from a financial commodity.

How does an ETF work?

ETF is an investment instrument that tracks a group of securities from a particular asset class and performs according to it. It is managed by a Fund manager who makes sure that the ETF tracks the underlying asset accurately. ETFs are listed on the Stock Exchanges therefore one can buy & sell them within the market hours at their desired prices.

How to add all Nifty 50 stocks in Zerodha Kite?

Zerodha is Indias largest discount broker in terms of the trading volume. Here you can create your own wishlist on the Kite application. The kite application is the trading terminal provided by Zerodha which is free to all its clients. The following steps can be followed to add the stocks to your watchlist.

What are the types of ETFs available for investment?

Exchange-Traded Funds or ETFs are an investment tool that tracks particular securities like Equity, Commodity, Bonds, etc. ETFs are available for many categories from which one can choose from. These are listed on Stock Exchanges (NSE & BSE) hence there is ample liquidity and one can easily buy and sell these at their desired price during market hours. Some ETFs available for investment in Indian markets are Equity ETFs, Debt ETFs, etc.

What is Mirae Asset FANG Plus ETF?

The Mirae Asset NYSE FANG Plus ETF Fund is a good option for Investors who want foreign exposure. The Equity allocation is very concentrated to just 10 stocks which makes this ETF very volatile and risky. This ETF consists of the top 10 stocks in their respective sectors mostly TECH, like Amazon, Netflix. Facebook, etc. Hence Investors with high-risk tolerance and a long time period should consider this fund.

How are ETFs different from Mutual Funds?

ETFs (Exchange Traded Funds) and Mutual Funds are similar investment vehicles that provide the investors various features. Both have their benefits and shortcomings. ETFs are a good option for passive investors who want to invest in a particular Index or Sector without much rebalancing. On the other hand, Mutual Funds are a better option for active investors who are more active with their investments. One can switch between funds according to their current strategies.