Full Form of NIFTY

Full Form of NIFTY – National Stock Exchange Fifty

The full form of NIFTY is National Stock Exchange Fifty. The NIFTY is the prominent benchmark index of the NSE (National Stock Exchange) comprising of stocks of the 50 different companies from different diversified sectors of the economy where the valuation of the NIFTY is determined on the basis of the performance of these stocks, and it is owned as well as managed by the NSE indices limited.

How is NIFTY Calculated?

In order to calculate the NIFTY, the weighted free-float market capitalizationFree-float Market CapitalizationFree Float Market Capitalization is a method by which the market cap of an index’s underlying are calculated. It is calculated by multiplying the price with the number of outstanding shares available for investors and traders.read more method is used, i.e., free-float capitalization of the company is considered for index calculation and assigning of weights to the stocks in the index. The following are the steps that can be used for calculating NIFTY.

  • For calculating the value of National Stock Exchange Fifty, firstly, market capitalization will be determined by multiplying the shares outstanding with the current prices of all of the companies in NIFTY.
  • After that, free-float market capitalization will be calculated by multiplying the market capitalization of each company with its investible weight factor (IWF), where IWF refers to the unit of the floating stockFloating StockThe total amount of shares of a company that are available for trade in the market is known as floating stock. It's derived by deducting the value of closely held shares and restricted stock from the total outstanding shares.read more of the company when expressed in terms of the number of shares that are available for the purpose of trading.
  • For the floating stock holding of promoters or group of promoters, strategic stakes by the corporate bodies, shares under the log-in category, cross-holdings, FDIs, Holdings of government as the strategic investor, and employee welfare trusts are excluded from the number of shares that are available for the purpose of trading. Then, the float market capitalization of all the stocks will be added together.
  • After the calculation of free-float market capitalization, Base Market Capital and base index value will be taken where base market capital is the market capitalization of the base year, and the base index value is kept at 1000.
  • Lastly, Index Value will be calculated using the formula:
Index Value = (Current Market Value / Base Market Capital) * Base Index Value
Full Form of NIFTY

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Usage of NIFTY

The NIFTY can be used for various different purposes. The following are some of the usages of the national stock exchange fifty:

NIFTY Usage

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Difference between NIFTY and SENSEX

The following are the main differences between NIFTY and NSE:

  • NIFTY stands for the National Stock Exchange Fifty, whereas SENSEX stands for the Sensitivity Index.
  • The Nifty is the benchmark index of the NSE, which consists of 50 companies being most actively traded in the National Stock Exchange whereas SENSEX is the benchmark index of the BSE and it is the stock market indexes that consist of the 30 well established and financially sound companies which are listed on the Bombay Stock Exchange.

Advantages

The following are the benefits of the National Stock Exchange Fifty:

Disadvantages

The following are the disadvantages of the National Stock Exchange Fifty:

  • If the person is the risk-taker, then trading in it is not a good option because most of the times, nifty enters within a trading range as it includes both the gainers as well as looser stocks but individual stocks of the company continue to rise without any trading range, sometimes even during the situation when the market is in a bearishBearishBearish market refers to an opinion where the stock market is likely to go down or correct shortly. It is predicted in consideration of events that are happening or are bound to happen which would drag down the prices of the stocks in the market.read more state. So, trading in the NIFTY person might have to forgo good return, which it could have earned by trading in the individual stocks.
  • Trading in the National Stock Exchange Fifty can be done using the futures and options only so, the person who has the long-term view or expectations from the market cannot deal in the NIFTY. This is so because in the case of the futures and options trading in only the near-month contracts can be done.
  • The stocks that are considered in the index of the NIFTY are the large-cap stocks only, and it does not consider the mid-cap stocks as well as small-cap stocks, which give good opportunities to the investors who trade smartly as there is a great level of fluctuations in case of the mid-cap stocks and small-cap stocks.

Conclusion

It is the abbreviation used for National Stock Exchange Fifty. As the name implies, National Stock Exchange Fifty is the benchmark index of the NSE, which consists of 50 companies being most actively traded on the National Stock Exchange. The management of the National Stock Exchange Fifty index is done by the NSE Indices Limited, which was formerly known as India index services & products limited. As the NIFTY comprises of the stocks of the different companies from diversified sectors of the economy, trading in NIFTY provides an opportunity to invest in hedging its positionHedging Its PositionHedging is a type of investment that works like insurance and protects you from any financial losses. Hedging is achieved by taking the opposing position in the market.read more in an efficient and effective manner.

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This has been a guide to the Full Form of NIFTY, i.e. (National Stock Exchange Fifty). Here we discuss how to calculate nifty along with its advantages, disadvantages, and differences. You may refer to the following articles to learn more about finance –

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