Building An Market-Weight Adjusted N50 Index Fund — Part I

If ITC went up 6.11%, Index goes up 0.18%

We can get into more accurate details if we do using points

If Reliance falls -0.5%, the index falls 0.05%. Now, assumption says, If Reliance rise -0.5% the index should rise 0.05% Will it ?

Here is the fault of the % system as We are not thinking mathematically!

Because when you fall 20%, You need to make back 25% to go back up.

Market Capitalization Weighted Method

Check out this document now — NIFTY Method Equity Index

In this document, first go to Page number 16 –

• Beginning June 26, 2009, the NIFTY 50 is being computed using float-adjusted market capitalization weighted method, wherein the level of index reflects the float-adjusted market capitalization of all stocks in the Index

So, We follow the “Market Capitalization Weighted Method” to calculate the value of our index.

How to Calculate NIFTY

So, Writing again in plain English –

• Market Capitalization = Equity Capital x Price
• Free float market capitalization = Equity Capital x Price x IWF (Investible Weight…