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Nifty is not an individual company. Nifty is an index that depends on the performance of the stocks comprised in the Nifty. Therefore the performance of the Nifty is dependent on those stocks which are known as the underlying asset. So you cannot buy Nifty just like you buy a company in equity. When you buy a company in the Stock Market, it simply means you are becoming a shareholder in that company and you sail with the profits and losses of the company. Whereas Nifty is only an index and not a company. Therefore investing or trading in Nifty cannot be done in the same manner as you do with the companies. The following are the methods in which one can invest in Nifty:

  1. Through Options and Futures:

The Options and Futures are called the Derivatives as their value depends on an underlying asset such as in our case NIFTY. The Futures and Options is an elaborate topic on its own. However we can enumerate a few pointers to bear in the mind.

  • In the case of Futures and Options, you buy a contract based on an underlying asset. A Future is a right and an obligation to buy or sell an underlying stock (or other assets) at a predetermined price and deliverable at a predetermined time. Options are a right without an obligation to buy or sell equity or index. A call option is a right to buy while a put option is a right to sell.
  • Contracts expire on the last Thursday of each month. Suppose you have shorted Reliance Futures for March. The contract will expire on the last Thursday of March at the closing of the markets.
  • You cannot short equity more than one day in intraday. You can short futures for more than one day also. This is possible because Futures are contracts and not shares.
  • In the cash segment you can buy any random number of shares according to your need. But in the Futures, there is a fixed lot size defined by the exchange. So you can only buy in multiple of that lot size. Nifty has a fixed lot size of 75 so if you want to buy a nifty future you can buy in multiples of 75.
  • The Risk element involved in Futures and Options is very high that you can easily lose your money and may end in trouble. So tread only with strict Stop Loss and never set your foot in F&O without completely knowing and understanding the nature and all the risks involved.

  1. Through ETF/Mutual Funds (Index Funds):

There are ETFs and Mutual Funds that are based on NIFTY.

ETFs:

 ETFs, or Exchange Traded Funds, are investment options similar to stocks. However, it is not a stock in the sense that an ETF can hold various assets such as bonds, commodities as well as stocks. Most ETFs track a particular index- stock or bond index. Goldman Sach’s NiftyBeES (Benchmark Exchange Traded Scheme) is a very popular instrument among investors followed by Reliance AMC’s NiftyBeES.

Index Fund:

An Index Fund is similar to a mutual fund wherein the index fund will track the benchmark indices like Nifty and its portfolio will have the 50 stocks that comprise the Nifty, in the exact proportions.

         For Example: HDFC Index Fund Nifty 50 Plan

                                   UTI Nifty Index Fund

Investing in NIFTY is considered to comparatively low risk because of the stability of the movement of the Index and the less volatility compared to the individual stocks. Therefore people who would like medium risk instruments can certainly prefer investing in NIFTY, more particularly through ETFs and Index Funds.