NISM Certifications · NISM-Series-VIII: Equity Derivatives · Understanding Index
An index is calculated using the free-float market capitalisation method. Which of the following is excluded from a company's market capitalisation when computing its weight in such an index?
Promoter and other strategic holdings that are not available for trading are excluded. Free-float market capitalisation counts only shares available to public investors, such as retail, mutual fund and FPI holdings, so the index reflects the investable portion of each company.
- AShares held by promoters and strategic holders that are not available for tradingCorrect
- BShares held by retail investors
- CShares held by mutual funds
- DShares held by foreign portfolio investors
Explanation
Free-float market capitalisation counts only the shares readily available for trading in the market. Promoter holdings and other locked-in or strategic holdings are excluded. Retail, mutual fund and FPI holdings are part of the free float and are therefore included.
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