Indices are basically the plural form of index and they refer to the alphabetic list of the names and subjects in the stock markets with the reference to all of those pages on which they are mentioned in the stock markets. They are also referred to the records in the stock markets that are kept there. Index is known differently in different terms. Like in statistics, these Indices are referred to the measurement of change in the economy of the stock market securities. On the other hand, in case of the financial markets, the index is referred to the imaginary portfolio of the securities that represents the particular sections of these stock markets.
Each of these Indices has got their own calculating methodology and most of the times they are expressed in terms of the change from the base values. However, the change of the percentage is more essential in this term than the original numeric values. The index of both the stock markets and the bond markets are used for the construction of the mutual fund Indices as well as for the exchange traded funds the portfolios of which ones mirror the components of these index markets.
Basically as well as technically the people can’t actually invest their money in the Indices as these index mutual funds as well as the exchange traded funds allow all the investors to invest their money or anything in the securities that represent the broad market segments or we can say the total market. Talking about the stock markets is actually very much usual these days as countless people have been investing a lot of their money in buying securities and vice versa in the stock market. This is the reason why these people are familiar with the term stock index.
One of the best examples of the stock market Indices is that there is an index XYZ that is made up of four companies together. At the end of the trading of yesterday, the XYZ index that was set at the points of 4123, today two of the companies of that index went up in their values, while one of them dropped in its price and the fourth one is still on the same position like yesterday. As the result, the total value of these stocks went up by the percentage of 2 and we can also say that the index XYZ is now 2 percent higher or the points of this index are now 4205.
Importance of the Indices:
Indices are really very important when it comes to stock markets. If people invest their mutual funds in the stock markets or they invest the individual stocks, then it is really very important for all of them to measure the performance of their investments against the market index of their relevant shares. However, if the investments of these people lag behind consistently, then it might be some time to come to the market with some kind of the new investing strategies.