Do you know NSE, the National Stock Exchange FINNIFTY on 11 January 2021? This is the new derivatives contract called as Nifty Financial Services Index. The FINNIFTY shows the behavior and trends of the Indian stock or financial market. It includes all the financial services, banks, insurance organizations, and other companies that belong to financial services.
In this blog, You will know the FINNIFTY meaning and its all the essentials. We will cover each of the topics of this newly launched index by the National Stock Exchange. So, let’s start this essential blog by learning about FINNIFTY.
What is FINNIFTY?
The FINNIFTY or the Nifty Financial Services Index is the latest index launched by NSE. It is designed to keep track of the performance and behavior of the Indian financial market, including banks, financial institutions, and many other organizations related to the finance industry. In simple words, it is the collection of the 20 significant stocks that rounds around top banks, insurance institutions, NBFCs, and other financial institutions. This index is based on the free-float market capitalization. Now, you may think about free-float market capitalization, so to know about it, look at the below.
What is Free Float Market Capitalization?
Free float market capitalization refers to the multiplication of the outstanding shares, prices, and investment weight factors.
FFMC or Free Float Market Capitalization = outstanding shares*share price*IWF
Thus, you also have understood about FFMC, so let’s back to FINNIFTY and discover its other essential information.
If you have a piece of deep knowledge in the finance market. Then you probably know the importance of financial firms as they contribute to the country’s economy. In recent years, financial firms, institutions, and companies are continuously gaining a sufficient amount of prominence. This industry also supports credit generation and growth around the economy. Therefore, FINNIFTY aims to cover the subsectors of the financial industry to keep analyzing its progress within the single index.
Key Features Of FINNIFTY
- The index that comes under the Nifty Financial Services Index has the base date of 1 January 2014 with 1000.
- It is designed to keep the performance and behavior track of Indian financial services companies, including banks, insurance companies, and housing companies.
- This index covers the top 20 stocks from subsectors of the finance industry.
- It is based on free-float market capitalization methods, which apply to reduce turnover of these organizations.
- To become part of this index, the companies need to be part of the Nifty 500.
Sectors Involved in FINNIFTY?
| Name Of Institution/Company/Organization | Industry |
| Mahindra and Mahindra Financial | NBFC |
| Cholamandalam Investment and Finance | NBFC |
| Bajaj Holdings & Investments | NBFC |
| Shriram Transport Finance | NBFC |
| Bajaj Finance | NBFC |
| REC | Financial Institution |
| Power Finance Corporation | Financial Institution |
| HDFC AMC | Other Financial |
| Piramal | Other Financial |
| ICICI Prudential Life Insurance | Insurance |
| SBI Life Insurance | Insurance |
| HDFC Insurance | Insurance |
| Bajaj Finserv | Insurance |
| State Bank Of India | Bank |
| Axis bank | Bank |
| Kotak | Bank |
| ICICI | Bank |
| HDFC Bank | Bank |
| HDFC | Housing Finance |
So, from the list, it has cleared that NSE has included a higher number of banks. Banks have secured 63.1 percent weight of FINNIFTY index whereas this has about 26.5 percent weight in Nifty 50, 20 percent in Nifty 500 and have obtained 100 percent weight in Nifty bank index as per the 29 December 2020.
Therefore, it provides more detailed oriented and targeted exposure for the investors because they can go deeper into the subsectors of Financial Services compared to other indices.
FINNIFTY vs Bank Nifty?
If you are reading this blog carefully, then you have a sound understanding of why FINNIFTY is different from Bank Nifty. In Bank Nifty, you can invest in bank stocks or the stocks of the bank. But in FINNIFTY, you have the choice to make an investment decision to invest in NBFC, Housing, Forex, Banks, and other financial institutions. Here you can avail the feature of trading every week and have many future possibilities to deal in. The future possibilities mean you can do trading on a predetermined date with the prefixed price for the stock you are willing to deal with. This is one of the beneficial indexes from the perspective of the investor or the trader.
How to Buy FINNIFTY Index?
If you want to buy the FINNIFTY index, then you will have to contact mutual fund companies. And will also have to choose the fund that obtains equal weightage and replicates the FINNIFTY index in return. In short, you do not have the option to buy the index directly from the stock market. Aside from this, you will also have to buy the index with the consecutive of 20 stocks with the same weightage.
Why Should you Invest in FINNIFTY?
Most of you think you should invest in FINNIFTY, right? The most important thing about buying the Nifty Financial Services Index is that it helps to reduce the non-symmetric risk involved in investment.
The non-symmetric risk means the events like indefinite strikes, higher financing costs, reduced profit margins, loss due to natural disasters like fire, floods, or any misconduct by management. Aside from this, you can also diversify the two familiar sources of unsystematic risks: business and financial risk. Instead of investing money in only one company, you can invest in 2-3 companies to diversify this risk associated with your investment decision. As FINNIFTY has the top and leading companies in the finance industry, therefore, you can easily diversify your unsystematic risks to maximize your earning potentials. Here you can get a chance to invest in the top 20 financial companies which have maximum market capitalization.
Conclusion
I hope now you have understood FINNIFTY’s meaning and you will not have to look anywhere to get the same information now. Now you have also gained in-depth knowledge about its key features, how you can buy FINNIFTY. And why you should make investment decisions for it, and many more crucial things.
Let’s sum up the things once more time.
FINNIFTY or Nifty Financial Services Index refers to the latest index launched by NSE on 11 January 2021. that aims to keep track of the behavior and progress of top leading financial subsectors like banks, NBFCs, housing finance, and other financial institutions.
Currently, banks have 63.1 percent weightage, HFC has 18.5 percent weight, and NBFCs have 8.1 percent weight in FINNIFTY. Along with this, insurance companies have secured 8 percent weight in this latest indices of NSE.
If you want to buy these indices, you will have to take the help of mutual fund companies to invest in similar funds that give shares to the FINNIFTY index in return.
So, if you have gained valuable information from this blog, please share it with your circle to spread awareness about this amazing index to invest in.