Volume-based index
Also written Volume-weighted index
An index whose weights shift daily with market value, the way equity indices work — unlike commodity indices, which fix weights for a year at a time.
In plain language
Not every index rebalances the same way. Some indices, like most equity indices, let a constituent's weight move around from day to day as its market value changes. The workbook calls this a volume-based index.
Commodity indices in India are built differently. Once the weights are fixed for the year, only price movements of the constituents change the index value — the weights themselves stay put until the next scheduled rebalancing.
How it works
Chapter 2, section 2.3, point 4, states this directly: commodity indices are price-based indices, and not volume-based indices. Once weights of commodities are determined in the index, the index captures only price movements — the weight of each commodity stays the same unless a rebalancing happens, generally once every 12 months.
Equity indices work the other way: they are volume-based, meaning the weight of an underlying security keeps changing based on its market capitalisation. The workbook's own illustration is Reliance Industries, whose index weight can move to 8 per cent or 12 per cent purely because its price move changed its market cap. By contrast, gold's weight in MCX BULLDEX stayed fixed at roughly 60 per cent through 2025 — it does not drift with gold's own price the way Reliance's weight drifts with its price, because commodity index weights are fixed for the year rather than continuously recalculated.
A worked example
Suppose the price of Reliance Industries rises sharply over a quarter, increasing its market capitalisation from Rs 15 lakh crore to Rs 18 lakh crore. Because Nifty is a volume-based (market-cap-weighted) index, Reliance's weight in the index rises along with its market cap — say, from 8 per cent to a little over 9 per cent — purely as a consequence of its own price move.
Now suppose gold's price rises by a similar magnitude over the same quarter. MCX BULLDEX does not let gold's weight drift upward in response — gold stays fixed at its assigned weight of roughly 60 per cent for the year, because BULLDEX is a price-based, not a volume-based, index. The higher gold price shows up entirely in the index's level, not in a change to gold's weight within it.
Why NISM asks about it
Chapter 2 (Commodity Indices), section 2.3, point 4, contrasting commodity indices directly with equity indices on this one point. Expect a question testing whether commodity indices are price-based or volume-based — price-based — and the Reliance/BULLDEX-style contrast the workbook itself uses.
Common exam traps
- Commodity indices are price-based; equity indices are the volume-based ones, in the workbook's own terminology — a question can flip this to test the distinction.
- A commodity's weight can still change, but only at the scheduled rebalancing (or in an extraordinary situation), not continuously as its price moves — unlike an equity index's daily market-cap drift.
- "Volume-based" here means driven by market value/capitalisation changes, not literally traded volume in the everyday sense.
Where this is taught
Free preparation for NISM Series XVIRelated terms
- Average Daily Trading VolumeThe liquidity test a commodity future must pass before its price may carry weight in a tradeable commodity index — Rs 75 crore a day for agri, Rs 500 crore for non-agri.
- Composite indexA commodity index spanning several segments — energy, metals, bullion — whose constituents must each weigh 1 to 30 per cent, with at least 80 per cent of the weight in sufficiently liquid futures.
- Sectoral indexA commodity index built from the futures of a single segment — bullion, base metals, energy or the guar family — with fixed annual weights and no 30 per cent cap per constituent.
- Three-month disclosure ruleThe requirement that a proposed rebalanced commodity index — its new weights and constituents — be publicly disclosed at least three months before the exchange starts publishing the index on those new weights.
- GUAREXNCDEX's sectoral commodity index on the guar family, with only two constituents — guar seed at 59.35% and guar gum at 40.65% for the year 2022-23.
- Law of averagesThe averaging effect that makes a commodity index less volatile than its constituents — useful diversification for a hedger, and the workbook's main explanation for why index derivatives stay illiquid in India.
- Liquidity valueOne of the two scores that fix a commodity's weight in an Indian commodity index — the average trading volume of its futures over the last 12 months.
- Price-based indexAn index whose constituent weights stay fixed for the year, so the level moves only when prices move — how every Indian commodity index works, as against volume-based equity indices.
- Production valueOne of the two scores that fix a commodity's index weight — the average value of deliverable supply over the past five financial years, where deliverable supply is production plus import.