An Index is a reference number, derived from the prices of a basket of constituents like commodities, currencies and stocks. The individual members are given weights depending on their relative importance. The final result is brought down to a base number of 100 and launched for use on a particular date, which becomes the birthday for that index. From that day onwards the index undergoes changes on account of changes in the prices of the individual constituents.
An index serves as a sample or quick indicator based on which users can draw a meaningful conclusion about the overall population.
Index – Example:
The most popular stock index in India, the ‘BSE Sensex’ comprises of 30 stocks that have the highest market capitalisation. Published since January 1, 1986, the Sensex is regarded as the pulse of the domestic stock markets in India. The base value of the Sensex is taken as 100 on April 1, 1979, and its base year as 1978-79.