Definition of Indices

The performance of the stock market can be estimated by taking into account the performance of stocks, bonds and other financial instruments contained within the marketplace. These statistical tools that are employed to measure the state of the economy are called averages and indices.

With the help of these market indices and averages, the change in a particular basket of goods can be measured over a specific period of time. An average is the common mathematical average - the sum of values of all securities divided by number of securities. For calculating the index, a base value and date is chosen and the change in basket of securities is calculated.

Points to remember:

• There are various methods to calculate averages and indices.

Example:
The Sensex is an index of the top 30 companies on the Bombay Stock Exchange.