Understanding the Significance of FINNIFTY for Investors
Understanding the Significance of FINNIFTY for Investors
In the fast-paced world of financial markets, staying ahead and making informed investment decisions is paramount. Enter FINNIFTY, a term that often leaves investors curious about its role. In this discussion, we will not only explore its significance but also unravel the mystery of “What is FINNIFTY?” and how it empowers investors in navigating the complexities of the financial landscape.
What is FINNIFTY?
FINNIFTY is a popular stock market index launched by the National Stock Exchange (NSE) in 2021. It includes stocks of twenty financial services companies in India. Stocks of banks, insurance companies, NBFCs (Non-Banking Financial Companies), and housing finance firms are included in the index. The index tracks these 20 stocks’ performance based on the free float market capitalisation value. When these companies are performing well, the index will grow. On the other hand, the index will plummet when the stocks of these 20 companies perform poorly. The index offers insight into the performance of the financial services sector in the country.
Every index has a base date, which is the date from which the index’s value is calculated. FINNIFTY’s base date is 1 January 2004, while its base value is 1000. Its value is 19,820 at present (as of 6 October 2023). Bank, finance, insurance, and power generation sectors have 64.33%, 26.74%, 8.67%, and 0.25% weightage in the FINNIFTY index. It is crucial to note that weights are rebalanced every six months (on 31 January and 31 July). One should always check the current weightage and value online before investing. You can use the FINNIFTY index to understand the current performance of the financial services sector and investors’ sentiment.
You cannot invest in the FINNIFTY index because it is only a numerical representation of the performance of 20 stocks. In most cases, you cannot invest in a benchmark index directly. You must choose a financial product designed to track the performance of the index. You can also choose to invest in stocks of individual companies that are part of this index. Here are the financial products that track the performance of FINNIFTY:
Index Mutual Funds
An index mutual fund will track the performance of a stock market index. You can find mutual fund schemes that track the performance of FINNIFTY online.
Exchange Traded Funds (ETF)
ETFs are designed to track the performances of different indexes. You can search for a reliable ETF that tracks the performance of the index.
Futures and Options (F&O)
These are financial contracts with predetermined conditions. Search for a futures or options contract whose value is based on FINNIFTY.
Why Should You Invest in FINNIFTY?
New investors often ignore the importance of crucial indexes like FINNIFTY. Instead, they indulge in compulsive or emotional decision-making. This is a credible index that has been performing for many years. You can increase the chances of higher returns by investing in financial products associated with FINNIFTY. Here are the reasons to invest in financial products offering the opportunity to invest indirectly in this index:
Diversification of Portfolio
When you invest in stocks of a particular company, the risks are higher. When the company does not perform well, your stocks will decrease in value. Diversification is the only option for investors to distribute risks across different stocks. Financial products associated with FINNIFTY are diversified, as they include all 20 stocks of the index. Low revenues, a drop in sales, and other risks are eliminated with this option.
Investment in the Financial Sector
Many investors are interested in the financial services sector, including banks, NBFCs, insurance companies, and others. If you are one of them, then this index will be the right benchmark choice.
FINNIFTY is among the top-performing indexes in the country. It has continuously risen over the years. For instance, FINNIFTY price on 30 December 2021 was INR 17,116.55. Its current price is INR 19,820 (on 6 October 2023).
Uses of the FINNIFTY
FINNIFTY is among the popular benchmark indexes in India. It is used by investors for the following reasons:
Benchmark for Investment Comparison
Investors use FINNIFTY as a benchmark to evaluate the performance of their portfolios. Before the introduction of this index, investors relied on BSE Sensex or NIFTY 50 for benchmark analysis. Now, investors within the financial services sector can use it, which is specially curated for the financial sector.
Investors often use FINNIFTY for hedging purposes. Investors might purchase the stocks in the FINNIFTY index. Such investors can also choose other related instruments for hedging.
Mutual Fund & ETF Investments
Since FINNIFTY is a high-performing index, investors prefer collecting investment schemes that track it. Mutual fund and ETF schemes tracking this index are available for investors in India.
FINNIFTY is a must for derivatives traders in the financial services sector. Many investors prefer futures and options contracts based on it. Derivatives trading can help investors with diversification, risk management, price discovery, and tailored investment. Derivatives based on this index are liquid and are traded easily.
There is no compulsion to exactly track the FINNIFTY performance. You can create a custom portfolio with preferred assets. However, financial service investors can use the FINNIFTY live index for research. Other investors can also use it to analyse the market sentiment, sector performance, free float market cap, and other factors.
Why is the FINNIFTY Index Important?
The index holds a significant position for investors and cannot be overlooked. It represents the performance of the top 20 companies within the financial services sector, all of which are also listed on the National Stock Exchange. It’s worth noting that these companies are also part of the NIFTY 500, which encompasses the leading 500 companies across various sectors. This index effectively encapsulates the performance of the financial services sector within the country.
When the top 20 financial services companies within this index are thriving, it has a ripple effect on the entire sector. Positive market sentiment often accompanies an increase in the index’s price. Therefore, the overall health of the Indian stock market can be gauged through the performance of this index. Given its far-reaching impact, the index also serves as a fundamental resource for investment research and benchmark analysis.
Can You Directly Invest in the FINNIFTY Index?
As discussed above, you cannot invest directly in the index. The index just represents the performance of the top 20 companies in the financial services sector. You can track its performance in your portfolio. You can also choose mutual funds and ETF schemes associated with the index. Futures and options contracts based on FINNIFTY are available for investors. You can choose any of the financial products associated with it, but cannot directly invest in the index.
FINNIFTY Stocks and Weightage
Each stock in this index has its weightage (contribution to the overall index) based on its free float market cap. Here are the current weights of FINNIFTY stocks:
HDFC Bank Limited
ICICI Bank Limited
State Bank of India
Bajaj Finance Limited
Kotak Mahindra Bank Limited
Axis Bank Limited
Bajaj Finserv Limited
HDFC Life Insurance Co Limited
SBI Life Insurance Company Limited
Cholamandalam Investment & Finance Company Limited
ICICI Prudential Life Insurance Company Limited
Power Finance Corporation Limited
SBI Cards and Payment Services Limited
Shriram Finance Limited
ICICI Lombard General Insurance Company Limited
HDFC Asset Management Company Limited
Muthoot Finance Limited
LIC Housing Finance Limited
Indian Energy Exchange
Note: It is the current weightage of different stocks in FINNIFTY. The weights are rebalanced at regular intervals. Investors must check the FIN NIFTY live weightage before making a decision.
Sectors Involved in FINNIFTY
The four major sectors involved in the index are bank, finance, insurance, and power sectors. These sectors have 64.33%, 26.74%, 8.67%, and 0.25% weightage in the index, respectively. The banking sector is further divided into private bank (53.02%) and public bank (11.31%). The Finance sector is divided into NBFC (16.44%), investment (5.27%), term lending (3.27%), asset management (1.21%), and housing finance (0.55%) sub-sectors. There are no sub-sectors for the insurance and power sectors in the FINNIFTY index.
Investors interested in stocks of financial services companies must be familiar with the FINNIFTY index. They must review FINNIFTY charts at regular intervals to understand the overall performance of the financial services sector in India. You can invest in futures, options, mutual funds, and other financial products associated with the index. Check the FINNIFTY live price now!