What is the Nifty 50 Index and How to Invest in it?

In the past few years, many Indian investors have developed greater understanding and interest regarding passive investments like exchange traded funds (ETFs) and

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What is the Nifty 50 Index?

The Nifty 50 Index is a diversified equity index that comprises the 50 largest listed companies on the National Stock Exchange (NSE). These 50 companies are ranked on the basis of the free-float market capitalisation of their stocks as on 30th September 2022. This large-cap equity index features stocks from 13 different sectors and features India’s largest 50 companies.

Being the flagship index of NSE, Nifty 50 Index is among the most commonly followed indices in India and its movement is often considered as an indicator of the overall performance of India’s stock market. However, one must keep in mind that this is not an equal weight index i.e. different stocks have different weights i.e. all the stocks featured on this index have an equal impact in the upward or downward movement of the index. So, an index fund replicating this large-cap diversified index will also have to replicate the individual weight of each stock as featured on the index.

What is the Nifty 50 Stock List?

As the name suggests, Nifty 50 stocks list features 50 individual stocks. The below table lists the top 10 stocks featured on the Nifty 50 based on their weights as of July 2023:

Stock Name	Individual Weight (%)
Reliance Industries	10.21
Maximum Maturity Age (age as on the nearest birthday)	55 years
HDFC Bank	8.90
ICICI Bank	7.74
HDFC	6.10
Infosys	5.64
ITC	4.72
Tata Consultancy Services	4.00
Larsen & Toubro	3.54
Kotak Mahindra Bank	3.21
Axis Bank	3.20

This weight of individual stocks is assigned on the basis of free-float market cap of the stock. So, Reliance Industries has a higher weight than HDFC Bank because the former had a higher market cap as compared to the former on the most recent re-balancing date of 31st May 2023.

So the portfolio of a Nifty 50 Index Fund will feature these 10 stocks along with the 40 other large cap stocks as per their applicable weight on this index. However, these 50 stocks and their weights are liable to change when the index gets rebalanced on a semi-annual basis.

The cut off dates for Nifty 50 Index rebalancing are May 31 and November 30 of every year. At the time of rebalancing of the index two possible changes may occur – up to 5 new stocks may be included to replace 5 existing stocks that have performed poorly or the weight of individuals stocks in the Nifty 50 Index may change due to changes in free-float market cap of the stocks. Similarly, the investment portfolio of Nifty 50 ETFs and Nifty 50 Index funds is also liable to change on a semi-annual basis.

Which Sectors are Featured in the Nifty 50 Equity Index?

As you might have noticed from the above list, the 10 largest companies featured in this Nifty large cap index belong to a variety of sectors. The below table illustrates the exposure of the index to various sectors and their individual weights as of 30th June 2023:

Sector Name	Individual Weight (%)
Financial Services	37.59
Information Technology	12.65
Oil, Gas & Consumable Fuels	11.99
Fast Moving Consumer Goods	9.82
Automobile and Auto Components	5.98
Healthcare	3.86
Construction	3.54
Metals & Mining	3.52
Consumer Durables	3.30
Telecommunication	2.61
Power	2.10
Construction Materials	1.89
Services	0.74
Chemicals	0.41

As you can see, while Nifty 50 Index is diversified across multiple sectors, its exposure to financial services sector is in excess of 37% due to the inclusion of large cap BFSI stocks like the HDFC twins, ICICI Bank, Axis Bank and Kotak Mahindra Bank to name a few. Apart from this, the index also has significant exposure to stocks that are part of IT, Oil & Gas as well as FMCG segments. Since, the individual weight of each sector is calculated on the basis of individual stocks featured in the Nifty 50, so, the sectoral weight is also liable to change when the index undergoes semi-annual rebalancing.

Nifty 50 Index Returns

The construction of the index is such that investors can consider the Nifty 50 Index as a hypothetical portfolio featuring 50 large cap stocks. Based on this assumption and the fact the value of stocks features on the index changes on a daily basis, it is possible to determine the returns of the Nifty 50 Index over different time periods as shown below:

Nifty 50 Price Returns as of 30 June 2023
1 year	21.60%
5 year	12.36%
Since Inception	11.27%

The 1 year returns shown above are absolute returns while the 5 year and return since inception use CAGR (Compounded Annual Growth Rate) returns data. Based on the above data, here is what a one-time lumpsum investment of Rs. 10,000 made in Nifty 50 would look like:

Growth of Rs. 10,000 Lump sum Investment in Nifty 50 Index (as of 30 June 2023)
Maturity Value for investment made on 1 July 2022	Rs. 12,341
Maturity Value for investment made on 1 July 2018	Rs. 17,908
Maturity Amount for investment made on 3 Nov 1995 (at inception)	Rs. 198,878

As you can see, this diversified large cap index has witnessed substantial growth since inception and also in the past 1 year leading to substantial wealth creation for investors. Hence, equity investments that focus on this index can easily be incorporated into retirement planning to secure the financial future of investors.

How to Invest in the Nifty 50 Index?

Now that you have a better understanding of what the Nifty 50 is, let’s consider the various ways you can invest in this diversified index. In broad terms, there are 3 ways to do this –through a Nifty 50 index fund, through a Nifty 50 ETF or direct investment in equity stocks comprising the index. Here’s what you need to consider when choosing any of the options:

Nifty 50 Index Funds

Most fund houses have introduced Nifty 50 Index Funds that replicate the index and give returns that are in line with the index after adjusting for tracking error. Tracking error refers to the difference between index returns and the returns provided by the Index Mutual Fund due to fund management expenses or cost of maintaining cash/cash equivalent reserves to ensure liquidity.

Since a Nifty 50 Index Fund in India invest in India’s largest listed companies, it can be classified as a large cap scheme that is managed passively. Investors do not need a Demat (dematerialised) account or a brokerage account to make this investment. Index Funds are considered by many as one of the simplest and least expensive ways to invest in any index including the Nifty 50.

Nifty 50 Exchange Traded Funds (ETFs)

Exchange Traded Funds (ETFs) are similar to mutual funds as they invest in a portfolio of stocks or other assets, these underlying investments are then converted to units that are sold to the investor bases on the applicable market price. In the case of a Nifty 50 ETF, the underlying assets are the stocks featured in the Nifty 50 Index as per the applicable weights.

The key difference between an index scheme and ETF based on an index is that ETF units are listed on stock markets and can be traded in real-time, so intraday trading strategies similar to shares are available. This is not possible in the case of mutual funds like Index funds in India. Additionally, a Demat account is mandatory for anyone who wants to buy or sell ETFs in India. Nifty 50 ETF investors will incur brokerage charges, however, the fund management charges of this investment option is typically lower than that of index funds.

Direct Equity Stock Investments

It is theoretically possible to purchase all 50 stocks included in the index and maintain a portfolio allocation to mirror the individual weight of each stock as per the Nifty 50 Index. However, this strategy would be extremely time consuming and difficult to continue in the long term by an individual investor. Additionally, each buy or sell transaction would feature brokerage charges, depository charges, securities transaction tax, etc. which would further add to the cost of maintaining a portfolio of stocks that mirrors the Nifty 50.

As you can see, investing in a Nifty 50 Index Fund or a Nifty 50 ETF are the simplest and most effective ways to ensure that you are able to benefit from growth of this large-cap equity index without incurring exorbitant costs.

Frequently Asked Questions (FAQs)

Q1. What is PPF Account?

Q2. What are the benefits of investing in the Public Provident Fund or PPF?

Q3. What is the provision of a loan under the Provident Fund Investment Plan?

Q4. Can the PPF account be handled jointly between my wife and me?

Q5. What are the tax benefits you can claim under the PPF investment plan?

Q6. What is the Rate of Interest for the Public Provident Fund Investment Plan?

ARN No : July23/Bg/27B

Source:

https://www.angelone.in/knowledge-center/share-market/what-is-nifty-50-know-in-detail

https://www.nseindia.com/products-services/indices-nifty50-index

https://archives.nseindia.com/content/indices/Method_NIFTY_Equity_Indices.pdf

https://archives.nseindia.com/content/indices/ind_nifty50list.csv

https://archives.nseindia.com/content/indices/ind_nifty50.pdf

https://www.niftyindices.com/Factsheet/ind_nifty50.pdf

https://www.indiainfoline.com/knowledge-center/stock-indices/how-to-invest-in-stock-indices

https://www.niftyindices.com/indices/equity/broad-based-indices

https://www.bseindia.com/Sensex/IndexHighlight.html

https://www.indmoney.com/articles/mutual-funds/passive-mutual-funds-in-india

https://www.businesstoday.in/markets/stocks/story/explained-large-cap-stocks-are-usually-safe-bets-should-you-invest-during-a-bear-market-339842-2022-06-30

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