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What is Sensex? How is it calculated?

The term ‘Sensex’ includes a mixture of two words, i.e., sensitive and index and was conceived by Deepak Mohoni, a stock market expert.
What is it?
Sensex reflects the constant movements of the Indian stock markets and is the benchmark index of the Bombay Stock Exchange. If the value of Sensex rises, it usually means that there is a general price increase of various shares and vice versa. This index was launched in 1986 on January 1 and includes a basket of 30 stocks that represents the country’s biggest financially-sound companies listed on the BSE. It is also the oldest index in India.
Since Sensex includes several companies from all the key sectors of the economy, it reflects the stock markets in India. Companies included under it are selected by the S&P BSE Index Committee and are chosen based on the following criteria:

  • The companies should be listed under BSE in India.
  • They should include mega or large-cap stocks.
  • They should be relatively liquid.
  • They should generate income from core activities.
  • The companies should also contribute to keeping the sector balanced with the Equity Market of the country.

How is it calculated?
The BSE modifies the share composition of the Sensex often. This ensures that when you search for Sensex today, you get a fair understanding of the current conditions of the stock market. Initially, Sensex was calculated based on a weighted methodology of market capitalisation. However, since 2003, the calculation method for Sensex was reformed. Currently, it uses a free-float capitalisation method.
How is Nifty different?
Nifty is the benchmark index of the National Stock Exchange. It is made up of National 50 and a major difference between the two indices is the number of constituents each has. So, while Sensex includes the top 30 companies actively traded on BSE, Nifty 50 constitutes of top 50 companies that are actively traded on the NSE.
Steps to invest
Today, you can buy and sell securities online. However, before you start trading, you should follow these steps:
Open Demat Account
Before you do share trading, open a Demat Account. This account stores your shares and securities electronically or in a dematerialised format, making it convenient to hold Bonds, Exchange-Traded Funds, shares, etc.
Open Trading Account
After you have opened a Demat Account, also register to open a Trading Account since BSE does not allow you to directly buy or sell securities. However, you can sell and buy securities through a Trading Account.
Link the Bank Account
You should link your Bank Account to your Trading Account and transfer adequate funds to it before you can start purchasing securities online. You will also need a valid PAN card for the trading process.