What Is FinNifty? Everything You Need To Know About It

In the world of finance, every move in the market can make your way to either the opportunities or the risks. At times it becomes difficult on how to invest in the stock market and how to overcome the fear of facing the risks. Well, to overcome the fear of investing in the stock market, one such index has been introduced in the market, goes by the name FINNIFTY. But the question that has been making the rounds is – What is FinNifty?

How is this term holding so much importance in the stock market?

FinNifty, the alternative term used for Nifty Financial Service Index, was launched by National Stock Exchange (NSE) in 2021.

About FinNifty: An Overview 

Nifty Financial Services or FinNifty, introduced by the National Stock Exchange (NSE) on January 1st, 2021. Launched as the symbol or indication for the Nifty financial services in the stock market. To serve as the ultimate guide for those who are looking to invest in the stock market.

FINNIFTY is  the financial index that includes 20 stocks from various financial institutions with their stock prices and percentage they hold in the Indian Financial Sector. 

Fin Nifty’s purpose is to present the performance of stock prices of various banks, insurance companies, housing finance companies, financial institutions, Non-Banking financial corporations (NBFCs). Also the companies that are listed on the National Stock Exchange (NSE) that offer financial services. 

Pointers of FinNifty 

• FinNifty is considered as one of the crucial factors in the economic growth of the country, as it is designed to track the behavior and stock performance in the Indian financial segment. 
• The base value of stocks is 1000. 

Weightage of Stocks in FinNifty 

The weightage of stock prices in FinNifty kept on changing as it entirely depends on the market valuation of the shares. 

• Although, as of February, 2023, the banks hold a weightage of 63.1% of FinNifty, while the insurance companies hold 8.0%. The rest percentage holding is for the other financial institutions. Along with it, banks hold 20.3% of Nifty 500 and 100% of Nifty Bank Index. Insurance companies hold 2.5% in Nifty 500 and Nifty 50. 
• FinNifty is the go-to stop for launching index funds, for fund portfolios making, and to know about Exchange Traded Funds (ETFs). 
• One of the most interesting facts to notice about FinNifty is, that the stock prices that have the most weightage cannot exceed more than the 33% of the index. Also the top three stocks that appear on the FinNifty list cannot exceed the given value i.e. 62% of the index. This helps them to maintain the FinNifty index according to market value. 
• The stocks under FinNifty are selected according to their free float market capitalization, as it is done under Nifty 50. 

Note: To know more about stocks, visit our article 10 best monopoly stocks in India.

Financial Constituencies Share In FinNifty 

The financial companies, banks, housing finance companies, that qualify under Nifty 500 rules and regulations, are also eligible for the criteria for FinNifty. 

This data is presented according to the NSE as of August 2023. However the above numbers can change as per the latest market valuation of stock prices. There are other companies too which are included in FinNifty.

Companies are are HDFC Asset Management Company Ltd, ICICI Lombard General Insurance Company Ltd, ICICI Prudential, Muthoot Finance, Piramal Enterprise, Power finance, Rural Electrification Company Ltd, and Cholamandalam Investment Ltd. 

How To Trade In FinNifty 

Fin Nifty doesn’t provide the option to trade directly. However investors can trade in FinNifty accordingly through its futures, options, and derivative products. 

By investing through a future contract, you have the responsibility of implementing the contract on or before the expiry date

While in options contracts. You have the right but not the responsibility of implementing the contract before or on expiry date.

However, you can buy FinNifty indirectly through one more way, i.e. by investing through mutual funds schemes. But one thing to take care of is that the weightage value should be nearly equal to fin nifty value.

The expiry date of the derivatives of FinNifty is the last Tuesday of every month, for a monthly contract. And if the last Tuesday of the month is a market holiday, then on the previous day i.e. the Monday, the contract will expire. 

How To Calculate FinNifty 

As discussed above, the FinNifty list consists of 20 stock prices from various financial institutions. Weight of each stock in FinNifty depends on its value of free float capitalization in the market. Formula to calculate Free float market capitalization is – 

Free Float Market Capitalization = Outstanding Shares X Price X IWF 

IWF (Investible Weight Factors)

Where a higher IWF indicates that the company is having a higher number of shares under public shareholding list. 

Formula to calculate FinNifty index is – 

FinNifty Index Value = (Current value of free float market capitalization / Base market  value of free float market capitalization) X Base Index Value (1000). 

Base value equals 1000 points as set in the base year. Current value is termed as the market value of 20 stocks in the list. Base value is also termed as the 20 stocks market value but in the base year.

How To Get Listed  in FinNifty

To get listed under Fin Nifty index, companies average free float market capitalization should be 1.5X of the average free float market capitalization of the smallest part of the index. 

This is maintained by the National Stock Exchange. To select among the companies to be in the top 20 stock price list. NSE chooses from the best 500 companies, which becomes the Nifty 500 India.

Next step in the process is that NSE calculates the weightage of each sub sector based upon the market capitalization model. After this, with the qualified stocks, based on the average free float market capitalization the weights of each sub sector is calculated. 

After the whole process, the stock that has entered into the FinNifty list, doesn’t mean that they’ll stick to that list always. NSE keeps on doing rebalancing after every six months to check whether the stocks are holding by the criteria to be the part of the index list. 

Investment in Fin Nifty Financial Services 

You can invest in Fin Nifty financial services through Exchange Traded Fund (ETFs), buying shares in Fin Nifty, or through Index Funds. These methods not only provide good returns and exchanges, but also provide safety from the risks of direct stock investments. 

Index funds is the alternative name of Mutual fund investing. The investing through mutual funds is similar to the ETFs funding way. But the only difference between both the methods is that, in index funds, they track their trade only once in a day at the end of their trading session.

ETFs (Exchange Traded Funds), are referred to as the investment funds that trade in the same way on stock exchanges as the individual stocks. ETFs provide a diversified convenient exposure to know about the top 20 financial companies of India. 

Whereas, in the Buying through shares method, investors can invest through buying shares in the company that is listed in NSE. For this a careful and constant watch is required on the financial prospects and growth in the market. 

Summing Up

Fin Nifty has emerged as an absolute guide for the investors who are thinking to invest in the financial market but are lacking the knowledge about it. It comprises all the information regarding the stocks, its current value in the market. Also about the percentage of shares a company owns in Fin Nifty. And how can someone invest in it, the risks associated, the futuristic approach, etc.

FinNifty from its establishment till date is gaining recognition day by day. With its diversified reach in the Indian financial market, providing investors with a wide range of facilities. Hence, looking at Fin Nifty before investing in any stock is a must to-do thing.