New Delhi, Oct. 1 -- Index rebalancing is a periodic process through which the composition of a stock market index is reviewed and updated to reflect changes in market value, liquidity and eligibility. As companies grow, lose market share, merge or fall below the required criteria, they can be added to or removed from an index.

The recent BSE-Wipro reshuffle in the Nifty 50 offers a clear example of how an index rejig works, what triggers such changes and how investors may be affected.

A stock market index comprises a selected group of companies designed to represent a particular segment of the market. Stocks are selected based on parameters such as market capitalisation, free-float market capitalisation, liquidity and other eligibility...