The financial world is thankful for the introduction if indices. It has become of the key statistic value in measuring the performance of a portfolio or the market. If you switch to any of the financial news channels, you would hear the value of various indices going up or down. These are the representative of different markets and portfolios. However, there is not just one kind of index. There are different indices used by investors to measure different components of market. There are also country wise indices which measure the performance of the securities market of their respective country. One of the most common indices we hear is a price index which constitutes the changes in prices of different commodities, portfolios, and assets. However, one of the better ways to measure the change in prices and yields are the total return indices. These indices not only incorporate the changes in prices but also include dividends, interests, rights offering, and other distributions as well.
An investor needn’t worry about using the indices used by the market for a make believe portfolio. He can use a price index or a total return index which is customized to replicate and measure his specific portfolio. A custom index is a tailor made solution which is designed to suit the client’s requirement, unique mandates or investment strategies. So, clients now have an opportunity to modify an existing index or make a new index suiting their plans. They can vary across variety of asset classes, and are not limited to equities, commodities, and fixed income. Whereas if an investor is only dealing in equity; they can even opt for dividend index. These dividend indices can include the highest yielding stocks relative to their home markets and are available for global and regional markets based on their dividend payments. There are dividend indices which aim to maximize the yield of the index portfolio on a short term basis.
Thus, investors today have a lot of options. There are different indices for an investor to choose from. Therefore, an investor should have the knowledge about different indices out there and choose the one that represent their investment strategy the most.
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