NIFTY 50 vs NIFTY Next 50 vs NIFTY 100

Explore the differences between NIFTY 50, NIFTY Next 50, and NIFTY 100 indices, providing insights into India's leading stock market benchmarks and their respective compositions, performance, and investment potential.
NIFTY 50 vs NIFTY Next 50 vs NIFTY 100
3 mins read
26 March 2024

If you have spoken to seasoned investors, many of them might have recommended adding low-cost Large Cap Index Funds to your portfolio. To do so, it is essential to familiarise yourself with three key indices: NIFTY 50, NIFTY Next 50, NIFTY 100 and understand the difference between NIFTY 50 vs NIFTY Next 50 vs NIFTY 100. Although all three indices focus on large-cap stocks, their construction differs significantly, impacting their performance and suitability for your investment strategy. The debate of NIFTY 50 vs NIFTY Next 50 vs NIFTY 100 centres on comparing the performance and risk profiles of India's top 50 blue-chip companies with the 50 that follow.

Analysing NIFTY 50 vs NIFTY Next 50 vs NIFTY 100 provides investors insights into the broader market trends and sectoral movements within the Indian equity market. Portfolio construction considering NIFTY 50 vs NIFTY Next 50 can significantly affect an investor's exposure to market fluctuations and growth opportunities. Bajaj Finserv Mutual Fund Platform offers a range of options that align with key indices like the NIFTY 50, NIFTY Next 50, and NIFTY 100, providing investors with diverse avenues to invest in the broader market.

NIFTY 100: The broad market indicator

The NIFTY 100 index encompasses India's top 100 large-cap companies based on full market capitalisation, including both active and inactive shares. Market capitalisation refers to the total market value of a company's outstanding shares, which is a key factor in determining a company's weightage in the index. For example, companies have significant weightage due to their high market caps, influencing the index's overall performance. Leveraging the growth trajectory of India's top companies, Bajaj Finserv Mutual Funds offer a strategic entry point into the market, reflecting the robust performance of the NIFTY indices and embodying the potential for long-term wealth creation.

The index is diversified across 17 sectors but is particularly weighted towards Financial Services, IT, and Consumer Goods. This is because the largest companies in the index often belong to these sectors. The NIFTY 100 index is rebalanced semi-annually, ensuring that it reflects current market conditions by including emerging companies and excluding those whose market cap has declined. It's also vital to understand the difference between NIFTY 50 vs NIFTY Next 50 vs NIFTY 100.

Performance of NIFTY 100

Over the past 15 years, the NIFTY 100 index has delivered an average annual return of over 12.3%. This performance underscores the potential of the index to offer substantial returns over the long term, despite market volatility.

NIFTY 50: The benchmark index

The NIFTY 50 index consists of the top 50 large-cap companies in India, based on their free-float market capitalisation. This method excludes inactive shares, focusing on the market value of readily available shares. The index includes leaders in various sectors, reflecting the strength and stability of India's largest companies.

The weightage of companies in NIFTY 50 is determined by their market cap, with the largest companies having the highest weight. The index is heavily skewed towards Financial Services and IT, similar to NIFTY 100, but with a more concentrated focus due to its smaller size.

Returns of NIFTY 50

The NIFTY 50 index has also shown impressive returns, with nearly a 12% average annual return over the last 15 years. This indicates its capability to outperform inflation significantly, offering investors robust growth potential.

NIFTY Next 50: The potential leaders

The NIFTY Next 50 index includes the 50 large-cap stocks that follow the NIFTY 50 constituents in terms of market capitalisation. These companies are seen as potential future leaders, making the index an interesting option for investors looking for growth opportunities. Over the past 18 years, more than 40 stocks from the NIFTY Next 50 have been promoted to the NIFTY 50, highlighting its role as a feeder for the top-tier index.

The NIFTY Next 50 is less concentrated than its counterparts, with a more even distribution of weightage across its constituents and sectors. This diversification can lead to a higher risk-return profile compared to the NIFTY 50 and NIFTY 100.

Performance of NIFTY Next 50

Historically, the NIFTY Next 50 has outperformed both the NIFTY 50 and NIFTY 100 indices. This higher return potential comes with increased volatility, making it suitable for investors willing to accept more risk for the possibility of greater rewards.

NIFTY 100 vs NIFTY 50 and NIFTY Next 50

While investing in NIFTY 100 might seem like a combination of NIFTY 50 and NIFTY Next 50, the reality is more nuanced. The top 50 companies of NIFTY 50 significantly influence the NIFTY 100 due to their combined weightage. Consequently, the performance of NIFTY 50 has a substantial impact on NIFTY 100.

Investment strategies using these indices

Your choice among these three indices should align with your risk tolerance and investment goals. For a straightforward large-cap exposure, NIFTY 100 or NIFTY 50 could be suitable options. If you're seeking higher growth potential and are comfortable with more volatility, the NIFTY Next 50 offers an attractive alternative.

Diversifying your investment across these indices can also be a prudent strategy, allowing you to balance risk and return according to your investment profile. This approach enables you to navigate through market volatility effectively, capitalising on the growth potential of India's leading companies.

Conclusion

As you consider adding Large Cap Index Funds to your portfolio, understanding the nuances of NIFTY 50, NIFTY Next 50, and NIFTY 100 is crucial. Each index offers a different risk-return spectrum, making it suitable for various investment strategies. By carefully selecting the right mix, you can optimise your investment outcomes, achieving a balance between stability and growth in your portfolio. With a focus on tracking error minimisation and strategic asset allocation, Bajaj Finserv Mutual Funds Platform is designed to cater to the investment goals of a wide investor base.