NISM Certifications · NISM-Series-VIII: Equity Derivatives · Understanding Index
In a free-float market capitalisation weighted index, the weight of a company is determined by which of the following?
The weight is based on free-float shares, meaning shares held by the public and available for trading, multiplied by market price. Promoter and strategic holdings are excluded, so the index reflects investable market value rather than total issued capitalisation.
- ANumber of shares held by the public multiplied by market priceCorrect
- BTotal issued shares multiplied by face value
- CShare price alone, ignoring shares outstanding
- DEqual weight assigned to every constituent
Explanation
Free-float methodology counts only shares available for public trading, excluding promoter and other locked-in holdings. Weight is therefore free-float shares times price. Using total issued shares would give full market capitalisation, not free-float.
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