All You Need To Know About The Nifty Next 50 Index Fund4 min read
In order to understand everything about the Nifty Next 50 index fund, it is first important to define what Nifty Next 50 is.
What is Nifty Next 50?
NIFTY Next 50 is comprised of the next 50 companies after excluding the NIFTY 50 stocks from Nifty 100. Briefly. NIFTY Next 50, like all other indices, is calculated using the free-float market capitalization method.
The weightage is assigned to the stock in this method based on the total free-float market cap rather than the total market cap. The residual market cap after removing the promoter stake in the company is the free-float market cap.
SEBI has reclassified stocks into large-cap, mid-cap, and small-cap categories. The top 100 stocks by market capitalisation are known as large-cap stocks.
These 100 large-cap funds are divided into two categories: Nifty 50 and Nifty Next 50. This means that the first 50 stocks are included in the Nifty 50 and the next 50 stocks, numbered 51 to 100, are included in the Nifty Next 50. The Nifty 100 Index is made up of the Nifty 50 and the Nifty Next 50.
Benefits of the Nifty Next 50 Index fund
The NIFTY Next 50 Index can be used for a variety of purposes, including benchmarking the performance of mutual funds and investment portfolios, tracking underperformance/outperformance, and providing a foundation for index funds, ETFs, and structured products. They provide the flavour of large-cap stocks while avoiding the risk of over diversification. Some of the other benefits of the Nifty Next 50 Index fund include:
- If a mid-cap stock performs well but is not present in the Nifty 100, it is promoted to large-cap and added to the Nifty Next 50.
- The Nifty Next 50 index does not have a concentrated allocation to any single stock. As a result, Nifty Next 50 has a significant advantage over Nifty 50.
4 reasons to explore the Nifty Next 50 Index fund
Now that we have a clear understanding of the benefits of the Nifty Next 50 Index fund, it is important to get acquainted with the 4 reasons why you should explore this fund.
1. Outperforms the large-cap and mid-cap indices
The Nifty Next 50 has given impressive returns, consistently. It not only does well against the Nifty 50 index but also compares well to mid-cap indices. Since its inception in November 1996 to 31st December 2018, the NIFTY Next 50 index has delivered an annualized return (PR) of 16.3% as compared to 12.0% of NIFTY 50, a substantial excess return of 4.3% per annum.
2. Diversification across sectors
The top ten holdings of the Nifty 50 account for 58.3% of the index, whereas the top ten holdings of the Nifty Next 50 account for only 33%. Several of the top holdings of the Nifty 50 may exceed 10% in some cases because the Nifty is more heavily concentrated in leader stocks in their respective sectors.
None of the top holdings in the Nifty Next 50 exceeds 5%. As a result, when the broader market participates, the Nifty Next 50 tends to outperform the Nifty 50 index. In polarised markets, the Nifty 50 index performs well.
3. Defensive Traits
A look at the Nifty Next 50 index reveals that its top holdings are in growth-oriented companies in traditionally defensive industries. As of December 2021, the total weight of consumer goods (16.75%), consumer services (9.91%) and pharmaceutical (8.36%) outweigh the weightage of these sectors in the Nifty 50 index.
4. Breeding ground for Nifty 50
The Nifty Next 50 is a breeding ground for the Nifty 50. Whenever new companies enter into the Nifty 50 basket, they are selected from the Nifty Next 50. Over the last 18 years, in all 41 stocks have been upgraded to NIFTY 50, out of which 27 stocks presently form the part of NIFTY 50. Which is also why Nifty Next 50 is typically referred to as a set of ‘tomorrow’s blue-chip companies.’
How can you explore the NIFTY Next 50 Index?
Depending on the risk and return profile of investors, we believe that either the Nifty 50 or the Nifty Next 50 indices can be considered as an integral part of the large-cap allocation.
The Nifty 50 is a more concentrated bet on established market leaders that outperforms in polarised markets. With a less concentrated composition and a higher allocation to defensives, the Nifty Next 50 can assist investors looking for long-term compounding.
If you’re interested in exploring the NIFTY Next 50 Index then you can do so with the Navi Nifty Next 50 Index Fund NFO through the Paytm Money app. Navi Nifty Next 50 Index Fund is an open-ended equity scheme that will replicate the Nifty Next 50 Index.
Explore the Navi Nifty Next 50 Index Fund NFO Now
Mutual Fund investments are subject to market risks, read all scheme related documents carefully. Paytm Money Ltd SEBI Reg No. INA100009859 Regd Office: 136, 1st Floor, Devika Tower, Nehru Place, Delhi – 110019. The NFO offering is non Exchange-traded products and Paytm Money Ltd (PML) is acting as an agent for distributing the same. Please note all disputes with respect to the distribution activity, would not have access to the Exchange investor redressal forum or Arbitration mechanism. Representations made about the performance are not indicative of future results. This information is purely based on publicly available data (Data source: Scheme Information Document, https://www.nseindia.com/, https://www.moneycontrol.com/) and in no way to be considered as advice or recommendation.
