- Date : 16/05/2023
- Read: 3 mins
Introduction to the Nifty Next 50 Index and how you can invest in it suitably
- What is the Nifty Next 50 index?
- Features of the Nifty Next 50 index.
- How to invest in the Nifty Next 50 index?
Index-based investing is considered an easy yet effective way of investing. Your investments, typically through index funds, aim to replicate the returns generated by the index that acts as the fund scheme’s benchmark. Nifty 50 is one such index that comprises the top 50 companies listed on the National Stock Exchange. Nifty Next 50 are the remaining 50 companies in the Nifty 100. These are large-cap companies that rank 51-100 in India in terms of market capitalisation. Large-cap companies are considered the most stable in the equity market.
Also Read: How To Choose An Equity Mutual Fund
Features of the Nifty Next 50
The weightage of companies in the Nifty Next 50 is based on the free-float market cap of the company, i.e., the market cap after removing the promoter’s share.
It is the cradle of future blue-chip companies. More than 40 companies from the Nifty Next 50 have been selected for the Nifty 50 in the last two decades.
Five Nifty 50 companies constitute 40% of the weightage of the index. In the Nifty Next 50, there are 14 companies constituting the top 40%. Thus, the Next 50 is more diversified and less top-heavy.
The Nifty 50 is also heavily dominated by the financial sector, while the Nifty Next 50 is diversified across sectors like consumer goods, metals, consumer services, pharma, etc.
Should I invest in the Nifty Next 50?
The Nifty Next 50 index has several advantageous features. However, it can go through periods of underperformance. Besides, it is more exposed to volatility compared to the Nifty 50. It has a higher standard deviation compared to the Nifty 50 and Nifty 100.
Given the high volatility, it is no surprise that Nifty Next 50 has a higher return potential, registering a higher average annual return than Nifty 50 and Nifty 100. It must be remembered that the Nifty 100 itself gives a bigger weightage to the Nifty 50, and as a result, both behave similarly in market situations.
A recent example of Nifty Next 50’s market sensitivity was apparent during the erosion in price of the Adani Group stocks. Investors of the Nifty Next 50 must be patient in such testing times. They must be willing to accept higher volatility and periods of underperformance. If these aspects of the Nifty Next 50 index are acceptable to you, you can include the benchmark index in your portfolio.
To sum up, for passive investments, the Nifty 50 and Nifty 100 offer a safer option. The Nifty Next 50 is a comparatively more volatile option. It can be opted for by more aggressive investors or invested through actively managed funds for more professional fund management. The allocation between your active versus passive funds will depend on your financial goals, risk appetite, investment horizon, and other parameters that are important to you.