Published Jun 18, 2026 4 Min Read

Introduction

A capitalisation weighted index gives more importance to larger companies based on their market capitalisation. This method is used by many major stock market indices because it reflects the overall value of companies in the market.

  • A company's weight increases as its market capitalisation increases.
  • The Nifty 50 and many global indices use a market capitalisation weighted index approach.
  • Most Indian indices use free-float market capitalisation rather than total market capitalisation.
  • Larger companies have a greater impact on index movements than smaller companies.
  • You can invest in index mutual funds and ETFs that track these indices.
  • The Bajaj Broking website offers access to 4,000+ mutual fund schemes with SIP investments starting from Rs. 100 per month.

You can begin your investment journey on the Bajaj Broking website by completing KYC, exploring index funds, and choosing SIP or lumpsum investments based on your financial goals.

What is a capitalisation weighted index?

A capitalisation weighted index, also known as a value weighted index or market capitalisation weighted index, is a stock market index where each company's weight depends on its market value. Companies with a larger market capitalisation receive a higher weight in the index.

This means that large companies influence index movements more than small companies. If a large company rises or falls sharply, it can have a significant effect on the index level.

Market capitalisation is calculated by multiplying a company's share price by the total number of outstanding shares.

ComponentMeaning
Share priceCurrent market price of one share
Outstanding sharesTotal shares issued by the company
Market capitalisationShare price × outstanding shares
Index weightCompany's share of the total index market value

Many major indices around the world use this method because it automatically adjusts to changes in company values.

How is the weight calculated in a capitalisation weighted index?

The weight of a company in a capital index is determined by comparing its market capitalisation with the combined market capitalisation of all companies in the index.

Formula:

Weight of a stock = (Company market capitalisation ÷ Total market capitalisation of the index) × 100

Example

CompanyMarket Capitalisation (Rs. crore)Weight
Company A5,00,00050%
Company B3,00,00030%
Company C2,00,00020%

In this example, Company A has the highest weight because it has the largest market capitalisation.

Many Indian indices use free-float market capitalisation instead of total market capitalisation. Free-float market capitalisation considers only the shares available for public trading and excludes promoter-held shares and certain restricted holdings.

Examples of capitalisation weighted indices in India and globally

Several well-known indices use the market capitalisation weighted index method.

IndexCountryWeighting Method
Nifty 50IndiaFree-float market capitalisation weighted
BSE SensexIndiaFree-float market capitalisation weighted
S&P 500United StatesMarket capitalisation weighted
Nasdaq-100United StatesModified market capitalisation weighted
FTSE 100United KingdomMarket capitalisation weighted

The Nifty 50 and Sensex are among the most tracked benchmarks in India. Their performance often reflects the movement of large listed companies across sectors.

Because larger companies receive higher weights, these indices can be influenced significantly by a small group of large businesses.

Why do investors use a capitalisation weighted index?

A capitalisation weighted index offers several benefits, but it also has some limitations that you should understand before investing.

AdvantagesDisadvantages
Reflects the market value of companiesLarge companies dominate index movements
Easy to track and manageSmaller companies receive less representation
Lower portfolio turnoverCan become concentrated in a few sectors
Widely used by index funds and ETFsRapid growth in large stocks can increase concentration risk

Many investors prefer these indices because they represent the actual size of companies in the market. This approach also keeps trading activity lower than some alternative weighting methods.

However, if a few large companies become very dominant, their performance can strongly influence overall index returns.

How do you invest through a capitalisation weighted index?

You can invest in a capitalisation weighted index through index mutual funds or exchange-traded funds (ETFs) that track such indices. The entire process is online and usually takes only a few minutes after completing KYC.

  1. Complete your KYC using valid PAN and identity documents as required by SEBI.
  2. Log in to the Bajaj Broking website and access the mutual fund investment section.
  3. Search for an index fund or ETF that tracks the Nifty 50, Sensex, or another market capitalisation weighted index.
  4. Review the fund's objective, riskometer level, and investment strategy.
  5. Choose SIP or lumpsum investment mode based on your preference.
  6. Enter the investment amount. SIP investments start from Rs. 100 per month for many schemes on the platform.
  7. Confirm the transaction and track your holdings through Dashboard, Portfolio, Orders, and MF Profile tools.

Conclusion

A capitalisation weighted index assigns stock weights according to market capitalisation, making larger companies more influential in index performance. This method is used by many leading indices, including the Nifty 50 and Sensex.

If you want exposure to broad market performance, you can consider index funds or ETFs that track a market capitalisation weighted index. Before investing, review the SEBI-mandated riskometer, complete KYC requirements, and select investments that match your financial goals and risk appetite. The Bajaj Broking website provides access to 4,000+ mutual fund schemes across equity, debt, hybrid, ELSS, thematic, and other categories.

Frequently asked questions

Is the Nifty 50 a capitalisation weighted index?

Yes, the Nifty 50 is a capitalisation weighted index that uses the free-float market capitalisation method. Companies with larger free-float market values receive higher weights in the index. This means large companies can have a greater impact on index movements. The capitalisation weighted index approach helps the Nifty 50 represent the value of major listed companies in India.

What is the difference between a capitalisation weighted index and an equal weighted index?

A capitalisation weighted index assigns larger weights to companies with higher market capitalisation, while an equal weighted index gives every company the same weight regardless of size. In a capitalisation weighted index, large companies have more influence on performance. Through the Bajaj Broking website, you can explore mutual funds that track different index strategies depending on your investment objectives.

What is free-float market capitalisation and why do indices use it?

Free-float market capitalisation measures only the shares available for public trading and excludes promoter holdings and certain restricted shares. Many Indian indices use this method because it reflects the shares actively available in the market. It provides a more realistic representation of investable market value and improves index accuracy.

Can I invest in a capitalisation weighted index through a mutual fund in India?

Yes, you can invest in a capitalisation weighted index through index mutual funds and ETFs in India. These funds aim to replicate the performance of benchmark indices such as the Nifty 50 and Sensex. On the Bajaj Broking website, you can access 4,000+ mutual fund schemes, complete KYC online, and start SIP investments from Rs. 100 per month in eligible schemes.

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Bajaj Finance Limited (“BFL”) is an NBFC offering loans, deposits and third-party wealth management products.

The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed.

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