Meaning/ Definition:
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.
