An index is an indicator of performance of something. For financial markets, it indicates the performance of a basket of securities (ie shares, bonds etc). This basket is representative of what the index is measuring. For eg a broad-based index, such as the BSE Sensex that measures the entire share market, would have a mix of companies in terms of size and industries etc in the basket. Then there are more specialised indexes to measure other baskets, such as large cap or mid cap shares, banking or pharma shares etc. The index is used to benchmark how your investments performed against it. For eg your shares may be compared with the BSE Sensex to see how they performed compared with the market.