Market indices are constructed by putting together securities that are representative of a specific market, segment or theme. For many years, the weighted market capitalisation methodology of constructing indices remained prominent, till the introduction of equal weighted indices in the previous decade and fundamentals based indices after that.
The choice of methodology makes a difference to the performance of the index. Indices are important for any investor because portfolio performances get measured against these indices which are used as benchmarks. For passive investors, entire portfolios are based on indices.
