FINNIFTY

What is NIFTY Financial Services?

NIFTY Financial Services (FinNifty) is a sectoral index on the National Stock Exchange (NSE) which captures the performance of the financial market in the Indian economy. It is a real-time index of 20 stocks belonging to banks, NBFCs, housing finance companies, financial institutions, and other financial service companies.

The basic industries eligible to be included in the NIFTY Financial Services index are Asset Management Companies, Depositories, Clearing Houses and Other Intermediaries, Exchange and Data Platforms, Financial Institutions, Financial Products Distributors, Financial Technology (FinTech), General Insurance, Holding Companies, Housing Finance Companies, Insurance Distributors, Investment Companies, Life Insurance, Non-Banking Financial Company (NBFCs), Other Banks, Other Capital Market-related Services, Other Financial Services, Other Insurance Companies, Private Sector Banks, Public Sector Banks, Rating Agencies, and Stockbroking & Allied Services based companies.

As of August 23, 2023, the 1-year and 5-year CAGR of NIFTY Financial Service is 9.2% and 11%, respectively.

History of the NIFTY Financial Services

This NIFTY Financial Services index was launched on September 7, 2011, with the base date as January 1, 2004, and the base value at 1,000. The NIFTY Fin Service index is owned and managed by NSE Indices Limited, previously known as India Index Services & Products Limited. FinNifty is governed by a three-tier structure that comprises the Board of Directors (BOD) of NSE Indices, the Index Advisory Committee and the Index Maintenance Sub-Committee.

NIFTY Financial Services has a variant in the form of the NIFTY Financial Services Total Returns Index. This index has practical applications for launching ETFs, index funds, and structured investment products, as well as for benchmarking fund portfolios.

How is the NIFTY Financial Services Value Calculated?

The NIFTY Financial Services’ value is computed by weighting its 20 stocks on the basis of periodically capped free-float market capitalisation relative to a base market capitalisation value.

The index value is calculated as follows:

Index value = Index market capitalisation/ (Base market capitalisation * Base Index Value)

The NIFTY Financial Services index is reconstituted semi-annually based on 6 months of data, with the cutoff date being January 31st and July 31st of each year.

How Are Stocks Selected for Inclusion in NIFTY Financial Services?

The securities must fulfill the following eligibility criteria to be included in the NIFTY Financial Services index:

1. Should be listed on the National Stock Exchange.
2. Should form a part of the NIFTY 500 universe.
3. Should be a part of the Financial Services sector.
4. Should preferably be traded on NSE’s F&O segment.
5. A recently listed company (IPO) can be included if it meets the above eligibility criteria for a period of three months instead of 6 months.
6. Should adhere to the cap of 33% in case of a single stock and 62% for the top 3 stocks cumulatively at the time of rebalancing. This capping factor is realigned on a quarterly basis on the last trading day of March, June, September, and December.

The final selection involves the following steps:

Step 1: Calculate the weights of each sub-sector of financial services stocks in NIFTY 500 based on average float-adjusted market capitalisation.

Step 2: Sort the companies in descending order based on average float-adjusted market capitalisation within each subsector.

Step 3: Include the companies if their average free-float market capitalisation is at least 1.5 times the index’s smallest constituent’s average free-float market capitalisation.

Step 4: Companies from each sub-sector will be selected in the same proportion as their sub-sectors’ weightage in the main index, as calculated in Step 1.

How To Invest in NIFTY Financial Services Companies?

You can invest in FinNifty companies through various investment avenues as follows:

1. Through direct stocks: You can invest directly in individual stocks of NIFTY Financial Services companies. You need to handpick the companies that have the potential to deliver high returns. This approach requires in-depth research and monitoring but offers the potential for significant returns if well-executed.Research and select companies that align with your investment goals and risk tolerance.
2. Through mutual funds: Mutual funds with a concentrated financial sector focus concentrate on an array of financial companies. There are index mutual funds as well that mimic the performance of the NIFTY Financial Services index. They grant investors exposure to a diversified range of financial sector entities, including banking, insurance, and NBFCs.

By investing in these funds, you can gain broad-based coverage of the sector's growth potential while mitigating risks associated with individual stock selection. You can invest in mutual funds through a lump sum investment or SIPs at regular intervals.

What Are the Benefits of Investing in the NIFTY Financial Services?

• Diversification: The Nifty Financial Services index contains various companies in the sub-sectors of financial services like banks, insurance, financial institutions, etc. These companies can offer diversification for the investor, which helps in reducing the risk involved with individual company stock.
• Exposure to the financial sector: Investing in Nifty Financial Services provides direct exposure to India's financial sector, including banks, NBFCs, insurance companies, and other financial institutions.
• Transparency: The performance of the Nifty financial services stocks is available publicly, making it easy for the investors to check the performance before making the right decision.
• Liquidity: FinNifty is considered to be a highly liquid index, meaning investors can buy or sell their shares easily during trading hours. This gives investors hope that they can exit their position hassle-free without any pressure.
• Long-term potential: With India's evolving financial landscape, FinNifty can offer long-term growth prospects to investors.
• Dividend income: If the stock in the Nifty Financial Services index offers dividend income, it will be a potential source of regular income for investors.

Overall, you can invest in stocks or mutual funds of the FinNifty index through Angel One. You can find the stocks or mutual funds involved with Nifty Financial Services on Angel One and go through their performance. Once you find the best stock/fund that suits your investment objectives and risk appetite, you can open a free Demat account on Angel One and make the investment smoothly.