Shares vs Index vs ETFs – NSE Kenya Explained for Beginners

📊 NSE Indexes, ETFs & How They Work in Kenya

If you’ve ever heard terms like “NSE 20 Share Index”, “NASI”, or “ETFs”, and wondered what they mean — this guide is for you.

We break down everything in simple language, with real-life Kenyan examples, so you understand how indexes help track the stock market and how to invest in them.

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✅ 1. What Is a Stock Index?

Have you ever heard someone say, “The market is up today” or “NSE 25 has dropped”?

What they’re referring to is a stock index.

📌 Simple Definition:

A stock index is like a scoreboard that shows how a group of selected companies are performing on the stock market.

It’s not about one company — it shows the average movement of many top companies combined.

🧠 Easy Analogy: Football League Table

Imagine the English Premier League (EPL):

• Each team = A company listed on the NSE
• Their combined performance on the table = The stock index

Just like a league table shows which teams are winning or losing overall, a stock index shows if the market is doing well or not.

If most companies in the index go up in price, the index rises (📈).

If many companies drop in price, the index goes down (📉).

🔍 Why Is It Called an “Index”?

An index is just a way to track and summarize data. In this case, it's stock prices.

In Kenya, the Nairobi Securities Exchange (NSE) has multiple indexes — each tracking a group of companies using different criteria.

💡 Why It Matters:

• If the index is going up, it’s a signal that many companies are growing — this can build investor confidence.
• If it’s going down, it could reflect economic stress or market challenges.

📈 Real-Life Example (Kenya):

Let’s say the NSE 25 Share Index includes:

• Safaricom
• Equity Bank
• KCB
• EABL
• Co-op Bank
• KenGen
• BAT Kenya

If Safaricom and Equity Bank both grow in price, and the rest stay stable or also go up, the entire index will rise.

So even if you don’t own Safaricom, you can watch the index to understand how the Kenyan stock market as a whole is doing.

🧾 Summary Table

Term	Meaning	Analogy
📥 Stock	Ownership in one company (e.g., Safaricom)	One player on a team
📊 Stock Index	Tracks many stocks as a group	League table
📈 Market is “Up”	Index has gone up — overall positive movement	Team wins or scores more
📉 Market is “Down”	Index has dropped — general decline	Team losing or performing poorly

✅ 2. Main Indexes on the Nairobi Securities Exchange (NSE)

Now that you understand what a stock index is, let’s explore the main ones used in Kenya. These indexes track the performance of different groups of companies and help investors monitor the market.

🔷 A. NSE 20 Share Index

This is one of the oldest indexes on the Nairobi Securities Exchange.

It tracks 20 blue-chip companies that are:

• Actively traded,
• Financially stable,
• And have a long-term presence on the market.

These are some of the most trusted companies in Kenya.

📌 Examples of companies that have appeared in the NSE 20:

• Safaricom
• KCB Group
• East African Breweries (EABL)
• BAT Kenya
• Equity Group

📊 Why it matters:

It shows how top legacy companies are performing — good for long-term comparison.

🔷 B. NSE 25 Share Index

This is a more modern index that tracks 25 of the best-performing companies.

It includes both big and growing firms with high trading volumes and consistent performance.

📌 Example:

If a mid-sized company like Co-operative Bank is doing well, it might be in NSE 25 even if it’s not in NSE 20.

💡 Why it's important:

Many investors and analysts consider NSE 25 more reflective of today’s market performance than NSE 20.

🔷 C. NSE All Share Index (NASI)

The NASI is an index that includes every listed company on the NSE — large and small.

• It gives the broadest view of the market’s health.
• If the NASI goes up, it means most companies are growing.
• If it falls, it may reflect a general downturn.

📌 Good for:

New investors who want to understand the overall market trend.

📈 Quick Comparison Table

Index	What It Tracks	Best For
NSE 20	20 blue-chip companies	Long-term comparison
NSE 25	25 high-performing firms	Real-time market snapshot
NASI	All listed companies	Overall market direction

✅ 3. Why Indexes Matter

Stock indexes are more than just numbers on a screen. They play a crucial role in helping both beginners and experts understand the health of the market, compare performance, and even invest more easily.

📉 A. Indexes Show How the Overall Market Is Doing

Think of an index as a market thermometer. It tells you whether investors in Kenya are generally confident (when the index goes up) or worried (when the index goes down).

✅ Example:

If the NSE 25 Share Index is rising steadily, that means most of the top 25 companies (like Safaricom, KCB, Equity Bank) are doing well.

It’s a signal that the market is healthy and possibly growing.

On the other hand, if the index is falling, it could mean there’s uncertainty — maybe due to elections, inflation, or global issues.

📊 B. Indexes Help You Compare Stock Performance

Indexes act like benchmarks. They help you measure whether your chosen company is doing better or worse than the overall market.

✅ Example:

Let’s say you own Safaricom shares, and over the last 6 months:

• Safaricom has gone up by 15%
• The NSE 25 has gone up by 8%

That means Safaricom is beating the market — it’s growing faster than average.

But if your company is only up by 2% while the index is up by 10%, it might be time to ask why.

🌍 C. Indexes Are Used to Create ETFs (Exchange-Traded Funds)

This is where it gets really exciting for investors, especially beginners.

An ETF is a special type of investment that lets you buy the whole index — like buying a basket of shares all at once.

✅ Example:

Instead of buying:

• Safaricom
• Equity
• KCB
• EABL

... one by one (which can be expensive and complicated)...

You can invest in an ETF that tracks NSE 25, and instantly become a part-owner of all 25 top companies — in one move.

It’s like buying a combo meal instead of ordering everything separately.

ETFs are:

• Easier to manage
• Diversified (reduce risk)
• Often cheaper (fewer transaction costs)

🧾 Summary Table

Why It Matters	What It Means	Analogy
Market Health	Rising index = most companies doing well	Market “thermometer”
Performance Comparison	Measure if your stock is beating or lagging behind the market	Race leaderboard
ETF Foundation	Build easy investments by buying the whole index	Combo meal vs ordering one item

📏 How Are Indexes Calculated & Used to Measure Market or Stock Performance?

Understanding how indexes are calculated and why they matter can help you become a smarter investor. Let’s break it down in simple terms:

✅ 1. What Does “Calculating an Index” Mean?

A stock index is not just an average — it’s a mathematical formula that combines the prices (or value) of selected companies into a single number.

🧠 Analogy:

Think of it like calculating the average score of a football team across several matches:

• Each match = a company

• Final average score = the index

So, if most companies go up in price, the index goes up. If they go down, the index drops.

✅ 2. Price-Weighted vs Market Cap-Weighted Indexes

📌 A. Price-Weighted (e.g., the old NSE 20 Share Index)

• Companies with higher share prices affect the index more.
• This means a small company with a high price can still move the index more than a large company with a lower price.

Example:

If Company A trades at KES 200 and Company B at KES 20, Company A will have 10x more impact on the index movement.

⚠️ Drawback: This can be misleading because it ignores company size (market value).

📌 B. Market Cap-Weighted (e.g., NSE 25 or NASI)

• Uses market capitalization (company size) to calculate the index.

Market Cap = Share Price × Number of Shares

Example:

Safaricom may trade at only KES 20, but because it has billions of shares, its market cap is huge.

Another company may trade at KES 200 but have very few shares — smaller market cap.

💡 Key Point: Even with a lower price, Safaricom influences the index more due to size.

✅ 3. Why This Matters for You as an Investor

Indexes are useful tools to:

• Track market or sector health
• Compare how your shares are performing vs the general market

🔍 Real-Life Example — Comparing Stock vs Index

Let’s say:

• You bought Equity Bank shares at KES 45
• 6 months later, they rise to KES 50 → 11% gain
• During the same time, NSE 25 Index goes from 2,000 to 2,200 → 10% gain

✅ Result: Your stock outperformed the market.

But if Equity only rose to KES 47 (4.4%) and the index gained 10%, your stock underperformed.

📊 Index Performance and ETFs

ETFs (Exchange-Traded Funds) are built using indexes. For example, if you invest in an ETF that tracks NSE 25:

• If NSE 25 grows by 5%, your ETF likely grows by 5%
• If the index drops, your ETF also reflects that drop

Understanding how the index is calculated helps you know:

• Why your ETF value changed
• What sectors are driving growth
• Which companies have the most impact on the index

🧾 Summary Table

Concept	Meaning	Example / Analogy
Index Calculation	Formula combining stock prices or market caps	Average team score
Price-Weighted Index	High-priced shares affect index more	KES 200 share affects more than KES 20
Market Cap-Weighted Index	Large companies affect index more	Safaricom moves index more due to size
Stock vs Index	Compare your stock’s return to index	Race leaderboard

📥 Can You Buy Indexes on the NSE?

Many beginners ask: “If NSE 25 or NSE 10 is doing well, can I buy it like a stock?”

🛑 Short answer: No — you can’t buy an index directly.

✅ BUT — you can invest in products that track the index, such as:

💼 1. Exchange Traded Funds (ETFs)

🔎 What is an ETF?

An ETF (Exchange Traded Fund) is a special investment product that behaves like a stock. It’s built to “copy” the performance of something else — like a stock index or an asset (e.g., gold).

✅ So when you buy an ETF, you are investing in the performance of:

• A group of companies (like NSE 25)
• Or a commodity (like gold)

🏦 ETFs You Can Buy on the NSE

Currently available ETF in Kenya:

• ABSA NewGold ETF
  📌 This ETF tracks the global price of gold, not shares.
  ✅ If gold prices rise, the value of the ETF goes up.

💡 Analogy:

Think of it like “owning” gold without needing to physically buy or store it.

🤔 What About Index ETFs Like NSE 25?

⏳ Not yet — but soon!

The Nairobi Securities Exchange is working on launching local ETFs that will track NSE indexes like:

• NSE 25 Index
• NSE 10 Index

✅ When they launch:

• You’ll be able to invest in one ETF that covers 25 top companies.
• This gives you instant diversification and passive income potential.

🔁 2. Index Funds (Unit Trusts)

If you want an easier, hands-off approach, you can invest through:

🏦 Index Funds (also called Unit Trusts)

These are managed by licensed fund managers who collect money from many investors and invest it in shares that track an index like the NSE 25.

Unlike ETFs:

• You don’t buy or sell them on the NSE.
• You invest directly through fund managers or banks (e.g., CIC, Old Mutual, Sanlam).

🧠 Example for Comparison:

Investment Option	What It Tracks	Where to Buy	How You Earn
ABSA NewGold ETF	Global Gold Prices	Trade on NSE (via broker)	Buy low, sell high (price goes up if gold rises)
Future NSE 25 ETF	25 Top NSE Companies	NSE (when launched)	Capital gains from overall index growth
Index Fund / Unit Trust	NSE Market Index (e.g., NSE 25)	Fund Managers (not NSE)	Returns based on fund performance

🧾 Summary

Question	Answer
Can I buy an index directly on NSE?	❌ No — but you can invest in products that track it.
What can I buy now?	✅ ABSA NewGold ETF (tracks gold)
What might launch soon?	✅ ETFs that track NSE 25 and NSE 10
What’s another option?	✅ Index funds via licensed fund managers

✅What’s the Difference? Shares vs Index vs ETFs

Many new investors get confused between shares, indexes, and ETFs. Let’s break it down in everyday language with real-life examples and simple analogies.

📈 A. What Is a Share?

A share means you are buying a piece of ownership in one company.

💡 Simple Explanation:

When you buy 100 shares of KCB, you now own a small part of KCB Bank.

You benefit when:

• The share price goes up (you can sell at a profit)
• The company pays dividends (you get some income)

📌 Example:

• You buy 100 shares of KCB at KES 40 each.
• If the price rises to KES 50 → You make KES 1,000 profit.
• If KCB pays KES 2 per share in dividends → You get KES 200 cash.

📊 B. What Is an Index?

An index is a score or average based on the performance of a group of companies.

It’s not something you buy — it just shows how a part of the stock market is doing.

💡 Real-Life Example:

• The NSE 25 Index includes 25 top-performing companies in Kenya.
• If many of them go up in price, the index rises.
• If most fall, the index drops.

💡 You can’t buy the index directly — it’s like checking the scoreboard of a game.

💼 C. What Is an ETF?

An ETF (Exchange-Traded Fund) is like a basket that copies the performance of an index or asset.

You can trade it just like shares on the NSE.

📌 Example:

• ABSA NewGold ETF follows the global price of gold.
• If gold prices rise, this ETF becomes more valuable.
• You can buy or sell it through a stockbroker on the NSE.

🧠 Analogy: Farming Example

Let’s say investing is like farming with cows 🐄.

Investment Type	What It Means	Analogy
Share	One company	You own 1 cow 🐄
Index	Score of many companies	Watching how the entire herd is doing 🐄🐄🐄
ETF	Basket that mimics an index	You buy a milk bundle from the whole herd 🥛

🔁 Summary Table

Term	What It Means	Real Example
📈 Share	Buying a piece of one company	Buying 100 Safaricom shares
📊 Index	A score that tracks several companies	NSE 25 includes top 25 listed companies
💼 ETF	A fund that mimics an index and trades like a share	ABSA NewGold ETF (follows gold price)