ASPI Stock Index and S&P SL 20 Stock Index
Srilankan stock market (Colombo Stock Exchange – CSE) has two main types of the stock index to track the market performance,
- All Share Price Index (ASPI)
- S&P SL20
ASPI measures the movement of share prices of all listed companies based on market capitalisation. S&P SL20 measures the movement of share prices of selected 20 companies based on some aspects and sectors.
To discuss further in this topic we have to understand some basics of common stock indices. Then only we can understand the stock index of Srilanka ASPI and S&P SL 20.
Here we handpicked some important basics of stock indices,
1. What is a stock index?
2. How do stock indexes work?
3. How is ASPI calculated?
4. Benefits of using stock indexes?
5. Risks associated with stock indexes?
6. What are some tips for choosing a stock index?
Let’s learn about each topic now,
What is a stock index?
A stock index is a compilation of the prices of a selection of stocks. It’s used as a way to measure the performance of the stock market.
How do stock indexes work?
Stock indexes are made up of a group of stocks that are chosen because they are representative of the overall market. The index can be selected based on the company’s sectors or market capitalization or some other factors.
Market Capitalization = No of Shares of the Company * Share Trading Price
The main stock index in the United States is the S&P 500. The S&P 500 is made up of 500 different stocks. The index is designed to be a good measure of how the overall market returns over time.
The main stock exchange in Srilanka is S&P SL20. The S&P SL20 consists of 20 companies from different sectors which have the potential to grow over time.
Now let’s back to our ASPI and S&P SL 20.
How is the Srilanka index ASPI calculated?
The primary Equation for ASPI is calculated by getting the Percentage of Dividing The total current market capitalization by the Base market Capitalization.
ASPI = [ Current Market Capitalization / Base Market Capitalization ] *100
The base Market capitalization year is 1985. It means the total market capitalization of companies registered in 1985. This is the longest and the broadest measure of the Sri Lankan Stock market.
The Base Market Capitalization will adjust at a ratio wherever a new company is listed on Colombo Stock Exchange or Leave From CSE.
What are the benefits of using stock indexes?
Some other most common benefits of using stock indexes include the following,
- They provide a way to track the performance of a broad group of stocks.
- It can help to smooth out volatility in individual stock prices.
- From index investors to more easily identify good investments.
- They provide a way to save on transaction costs.
- These measurements can be a valuable tool for portfolio diversification.
What are the risks associated with stock indexes?
There are a few risks associated with stock indexes. The first risk is that stock indexes are not always accurate predictors of future stock prices.
For example, the S&P SL20 stock index can go down a certain percentage, while the ASPI goes up. This discrepancy is because the S&P SL20 includes companies that are larger and have a greater impact on the overall market than the ASPI.
The second risk is that stock indexes can be volatile. Because S&P SL20 smooths out the movement of only 20 companies while ASPI smoothed out nearly 300 companies.
Volatility can be a risk because it can make it difficult to predict future stock prices. That’s why investing in individual stocks seems risky for many investors.
What are some tips for choosing a stock index?
When it comes to choosing a stock index fund in Srilanka, there are a few things to keep in mind. First and foremost, it is important to choose a fund that is diversified, meaning it invests in a wide range of stocks.
As you know it’s hard to invest in ASPI (All 300 companies) but It doesn’t mean you have to invest in the S&P SL20. You can analyze your preferred companies and make your own bunch of companies and put your money on them.
Additionally, it is important to choose a bunch of companies with a low expense ratio, which will save you money in the long run.
Finally, it is important to research the different index funds sectors available and choose the one that is most appropriate for your financial situation.
Author’s Disclaimer
There is no direct stock index other than the above-mentioned two in Srilanka. But there are a lot of Asset management companies out there which help you to invest in multiple indices.
They provide Closed-ended mutual funds as well as Open-ended unit funds which invest in index funds picked by their research.
So if you interested in investing in index stocks and don’t want to invest by your own research you can try that way too. But the return may differ based on the company’s terms and conditions.
For your Quick info, in the year 2021
- Total ASPI return = 80%
- Total S&P SL20 return= 60%
- The return Asset Managements gave = 30-40%