Traditionally, indices were used to understand the stock market’s overall direction. However, few applications for indexes have emerged in the investment field. A few of the applications are explained below:

1. INDEX FUNDS – These funds invest in a specific index to generate returns equivalent to the return on the index. These funds invest in index stocks in proportion to which these stocks exist in the index.
2. INDEX DERIVATIVES – Index derivatives are derivatives contracts that have the index as the underlying asset. Index options and index futures are the most popular derivatives contracts worldwide. Index derivatives are useful as a tool to hedge against market risk.
3. EXCHANGE TRADED FUNDS – Exchange-traded funds are a basket of securities that trade like stock, on an exchange They have some advantages over other mutual funds as they can be bought and sold on the exchange. Since ETFs are traded on exchanges intraday transaction is possible. Furthermore, ETF can be used as basket trading in terms of the smaller denomination and low transaction cost. the first ETF in the Indian securities market was the nifty BeES, introduced by the benchmark mutual fund in December 2001. prudential ICICI mutual fund introduced SPIcE in January 2003, the first ETF on Sensex.