Stock market indices are a group of handpicked stocks, usually representing a particular theme or sector. They mirror the underlying stocks' performance, help you invest in a diversified portfolio and can give good returns.
FINNIFTY is one such index that represents financial stocks.
What is FINNIFTY?
Launched in January 2021, the Nifty Financial Services Index (FINNIFTY) is an index that comprises 20 stocks of companies engaged in offering financial services.
The companies include banks, insurance companies, NBFCs, housing finance companies, etc. The returns depend on the performance of the overall financial sector. If the sector is bullish, the return would be attractive; if it is bearish, the returns would be low.
Some of the features of FINNIFTY are as follows:
- The index has a base date of 1st January 2021 and a base value of 1000.
- Companies listed in the Nifty 500 are a part of FINNIFTY, and the index is rejigged every half year.
- Each stock occupies the same proportion as its free-float market capitalization
FINNIFTY derivatives
FINNIFTY futures and options are also available for trading. Such derivatives are settled weekly or monthly, depending on the trader’s choice. The settlement is done in cash when the contract expires.
If the settlement is done every month, FINNIFTY contracts expire on the last Tuesday of the month in which the contract expires. For weekly contracts, however, the contract expires on the Tuesday of the week it is meant to expire. If, for some reason, Tuesday is a market holiday, the previous trading day will be considered the expiry day for FINNIFTY contracts.
Benefits of investing in FINNIFTY
You can choose to invest in the FINNIFTY index because of the benefits that you get. These benefits include the following –
- The index comprises 20 top-rated finance stocks established in the market and can give you attractive returns on your portfolio. Since the index is diversified, your investment risk is mitigated, and you can gain exposure to different companies with one index.
- If the financial services sector is doing well, you can invest in FINNIFTY to capitalize on the return potential of the leading stocks.
- Ever since it was formed, FINNIFTY has given consistent and attractive returns. So, it would be a good addition to your portfolio.
How can I place orders in FINNIFTY on Motilal Oswal?
Motilal Oswal allows you to buy FINNIFTY futures and contracts if you have opted for the F&O trading option in your account. If not, you can activate the F&O trading option and invest in FINNIFTY derivatives.
Besides derivatives, you cannot invest in FINNIFTY directly in the spot or cash market. You can either invest in a mutual fund in FINNIFTY or buy all 20 index shares in the same weightage.
Rejection of ‘Intraday’ trading on FINNIFTY contracts
The National Stock Exchange (NSE) has specified a specified quantity freeze limit for FINNIFTY. The limit is announced and reviewed monthly. If you trade in quantities higher than the specified freeze level, the NSE will reject the trade. So, check your trading volume. If it exceeds the freeze limit, reduce it so your trade can go through.
The bottom line
FINNIFTY is different from the Nifty 50 or the Nifty Bank Index. It combines banks, insurance companies, and other financial providers. It is highly diversified and can be a good addition to your portfolio if you want to invest in the financial sector. So, understand what FINNIFTY is all about and how to invest in it.
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