Almost every news channel and newspaper has run stories in recent weeks about how the SENSEX has reached an all-time high and how this recovery from March's decline is unprecedented.
But what exactly is the SENSEX index, and how do you invest in it? This blog will teach you everything you need to know about SENSEX as well as how to invest in it at a low cost.
The SENSEX is a market index made up of 30 stocks
The Sensex, India's oldest stock market tracker, also celebrated its 42nd birthday. The Sensex was first introduced in 1986, but the index's base year is 1 April 1979, when it was set at 100. The S&P BSE Sensex, which has passed several milestones in the last 40 years, has been a witness to the evolution of the Indian economy. In 2006, the index closed above 10,000 for the first time, then above 20,000 in 2007, 30,000 in 2017, and 50,000 in 2021!
SENSEX is made up of two words: 'Sensitivity' and 'Index.' SENSEX, also known as BSE 30, is a stock index made up of 30 well-known companies that are financially sound, stable, and performing well in the market.
To be considered for inclusion in SENSEX, any organisation must meet five main requirements.
What criteria are used to choose SENSEX constituents?
Any stock in the SENSEX is added after thorough due diligence, ensuring that only high-quality stocks are included in the index. In reality, businesses must meet the following five conditions in order to be eligible for inclusion in SENSEX.
- The company must be listed on the Bombay Stock Exchange (BSE)
- It should be a big or medium-sized company
- The liquidity of the shares should be high.
- The company should generate substantial revenue
- Sector weight of the organization
What is the best way to invest in SENSEX?
The SENSEX is made up of India's best firms, and when you buy the SENSEX, you become a part-owner of these incredible businesses. You can now invest in SENSEX in one of two ways.
1) Invest in stocks directly in the same proportion as the SENSEX's weightage
You will begin investing directly in the SENSEX's constituents and the weighting they have in that index. This means you can buy stocks in the quantity that corresponds to the stock's weightage.
2) Invest in mutual funds that track the S&P index
Investing in index mutual funds is a great way to invest in the SENSEX. These funds are index replicas, meaning they have a portfolio that is identical to the index's. As a result, a SENSEX index fund would hold the same 30 stocks as the SENSEX.
Here are some suggestions for avoiding the risks associated with index funds:
- If you want to minimize return volatility, you will need to look for unique index products that mimic the Sensex Low Volatility 50 index to achieve your goals.
- The composition of your portfolio – the weights you allocate to individual stocks and sectors – is a key determinant of the risk you take when investing in equities. The more concentrated a portfolio is, the more susceptible to performance swings it is. A portfolio should preferably be well diversified across several industries and securities to reduce the chance of individual calls going wrong.
- It's critical not to lose sight of the fact that index funds allow you to follow the market rather than outperform it.