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NIFTY 50, NIFTY Next 50 Or NIFTY 100 – Which Large Cap Index To Pick? | ETMONEY
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In the last few years, Large Cap Index Funds have become quite popular among Mutual Fund investors. However, if you have also warmed up to the idea of including low-cost Large Cap Index Funds in your portfolio, there are three indices that you should know about – NIFTY 50, NIFTY 100, and NIFTY Next 50. While all 3 of them are large-cap indices, they are pretty different from one another in how they have been constructed.
In this video, we understand these three large-cap indices in greater detail. We address common concerns such as investing in the NIFTY 100 is exactly the same as investing in NIFTY 50 and NIFTY Next 50 separately.
Topics Covered:
00:00 INTRODUCTION
00:43 NIFTY 50, NIFTY NEXT 50 AND NIFTY 100 INDEX
06:38 PERFORMANCE COMPARISON
08:17 NIFTY 50 + NIFTY Next 50 ≠ NIFTY 100
👉 What Is the NIFTY 100 Index?
NIFTY 100 index is a basket of India’s 100 large-cap companies in terms of full market capitalization.
This full market capitalization is calculated by multiplying a company’s stock price with all of its shares. Here all the shares refer to both active shares readily available in the market and inactive shares such as those stocks held by promoters or the government.
While 100 large-cap companies comprise the NIFTY 100 index, each of the companies has a different weightage in the index. This is because a company’s weightage in the NIFTY 100 index is linked to its market cap. The higher the market cap of a company, the higher its weightage in the NIFTY 100 index.
👉 What Is the NIFTY 50 Index?
NIFTY 50 index consists of India’s top 50 large-cap companies based on their free-float market cap. This free-float market cap is calculated by multiplying a company’s stock price with its active shares readily available in the market. So, inactive shares or locked-in shares such as those held by insiders, promoters, and governments are not considered in the free-float market cap methodology.
Given the market-cap criteria, the NIFTY 50 index consists of some of the biggest companies in India, which are leaders in their respective sectors. This is because these companies have considerable market share and robust business models. However, each of the 50 stocks in NIFTY 50 does not have an equal weightage in the index due to the free-float market cap criteria.
👉 What Is the NIFTY Next 50 Index?
NIFTY Next 50 consists of 50 large-cap stocks from NIFTY 100 after excluding the constituents of NIFTY 50. These 50 stocks in the Next 50 are also potential candidates for inclusion in NIFTY 50 in the future. In fact, over the last 18 years, more than 40 stocks have been upgraded to NIFTY 50.
Like NIFTY 100 and NIFTY 50, each of the 50 stocks in the Next 50 has different weights due to the market cap criteria. Therefore, the higher the company’s market cap, the higher its weight is in the NIFTY Next 50 index.
👉 Performance Comparison Of NIFTY 100, NIFTY 50, And NIFTY Next 50
Considering NIFTY 100, NIFTY 50, and NIFTY Next 50 are all large-cap indices, you may expect more or less similar performance from them. However, that’s not the case. All three large-cap indices have a different risk-reward spectrum. While NIFTY 50 and NIFTY 100 are quite similar in terms of their performance, the Next 50 index is an outlier that carries relatively higher risk and has the potential to deliver better returns.
The yearly return comparison shows how the returns have been different for these indices at different points in the last few years. So in the 2008 market correction, the Next 50 index fell far more than the other two indices but more than made up for this with 3 digit return in 2009.
To better understand the volatility and in effect the risk levels in these 3 indices, we looked at their standard deviation. If returns move in a narrower range, the standard deviation will be low, indicating low volatility. And if returns move in a wider range, the standard deviation will be high, indicating high volatility.
This higher volatility in the NIFTY Next 50 is because it acts as a catchment space for stocks growing into the top 50 large-cap categories from being mid-caps. Therefore, during market rallies, some stocks in the NIFTY Next 50 deliver outsized gains. At the same time, the NIFTY Next 50 index also holds those stocks that have dropped out of the NIFTY 50 and those fall more during market corrections.
#ETMONEY #LargecapIndex #Nifty50 #mutualfunds
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In this video, we understand these three large-cap indices in greater detail. We address common concerns such as investing in the NIFTY 100 is exactly the same as investing in NIFTY 50 and NIFTY Next 50 separately.
Topics Covered:
00:00 INTRODUCTION
00:43 NIFTY 50, NIFTY NEXT 50 AND NIFTY 100 INDEX
06:38 PERFORMANCE COMPARISON
08:17 NIFTY 50 + NIFTY Next 50 ≠ NIFTY 100
👉 What Is the NIFTY 100 Index?
NIFTY 100 index is a basket of India’s 100 large-cap companies in terms of full market capitalization.
This full market capitalization is calculated by multiplying a company’s stock price with all of its shares. Here all the shares refer to both active shares readily available in the market and inactive shares such as those stocks held by promoters or the government.
While 100 large-cap companies comprise the NIFTY 100 index, each of the companies has a different weightage in the index. This is because a company’s weightage in the NIFTY 100 index is linked to its market cap. The higher the market cap of a company, the higher its weightage in the NIFTY 100 index.
👉 What Is the NIFTY 50 Index?
NIFTY 50 index consists of India’s top 50 large-cap companies based on their free-float market cap. This free-float market cap is calculated by multiplying a company’s stock price with its active shares readily available in the market. So, inactive shares or locked-in shares such as those held by insiders, promoters, and governments are not considered in the free-float market cap methodology.
Given the market-cap criteria, the NIFTY 50 index consists of some of the biggest companies in India, which are leaders in their respective sectors. This is because these companies have considerable market share and robust business models. However, each of the 50 stocks in NIFTY 50 does not have an equal weightage in the index due to the free-float market cap criteria.
👉 What Is the NIFTY Next 50 Index?
NIFTY Next 50 consists of 50 large-cap stocks from NIFTY 100 after excluding the constituents of NIFTY 50. These 50 stocks in the Next 50 are also potential candidates for inclusion in NIFTY 50 in the future. In fact, over the last 18 years, more than 40 stocks have been upgraded to NIFTY 50.
Like NIFTY 100 and NIFTY 50, each of the 50 stocks in the Next 50 has different weights due to the market cap criteria. Therefore, the higher the company’s market cap, the higher its weight is in the NIFTY Next 50 index.
👉 Performance Comparison Of NIFTY 100, NIFTY 50, And NIFTY Next 50
Considering NIFTY 100, NIFTY 50, and NIFTY Next 50 are all large-cap indices, you may expect more or less similar performance from them. However, that’s not the case. All three large-cap indices have a different risk-reward spectrum. While NIFTY 50 and NIFTY 100 are quite similar in terms of their performance, the Next 50 index is an outlier that carries relatively higher risk and has the potential to deliver better returns.
The yearly return comparison shows how the returns have been different for these indices at different points in the last few years. So in the 2008 market correction, the Next 50 index fell far more than the other two indices but more than made up for this with 3 digit return in 2009.
To better understand the volatility and in effect the risk levels in these 3 indices, we looked at their standard deviation. If returns move in a narrower range, the standard deviation will be low, indicating low volatility. And if returns move in a wider range, the standard deviation will be high, indicating high volatility.
This higher volatility in the NIFTY Next 50 is because it acts as a catchment space for stocks growing into the top 50 large-cap categories from being mid-caps. Therefore, during market rallies, some stocks in the NIFTY Next 50 deliver outsized gains. At the same time, the NIFTY Next 50 index also holds those stocks that have dropped out of the NIFTY 50 and those fall more during market corrections.
#ETMONEY #LargecapIndex #Nifty50 #mutualfunds
👉 Follow us on:
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