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How to invest in India’s top 500 companies with zero overlaps

Want to enjoy diversification benefits and reduce portfolio risks? Click here to know more about how to invest in India’s top 500 companies without having overlaps.
A simple investment portfolio of four index funds can give you exposure to India’s top 500 companies. A combination of a Nifty 50 index fund, Nifty Next 50 index fund, Nifty Midcap 150 index fund, and Nifty Smallcap 250 index fund can give you exposure to India’s top 500 companies with zero overlaps.

Mutual fund investors follow various investment strategies to diversify their investment portfolio, generate higher returns or for various other reasons. In the process, they may invest in multiple mutual fund schemes in the same category. For example, an investor may invest in two different large-cap schemes. Sometimes, an investor may invest in a large-cap scheme and a flexi-cap scheme. However, as an investor, have you ever thought about how this results in an overlap in your investments? You end up investing in different mutual fund schemes that invest in the same stocks. Some percentage of overlap may be okay. But, beyond a certain percentage, the overlap doesn’t give any benefit. This article will explain how to invest in India’s top 500 companies with zero overlaps.

Investing in India’s top 500 companies

You can invest in India’s top 500 companies in two ways:

  1. Invest in a Nifty 500 index fund
  2. Invest in 4 index funds: 1 Nifty 50 index fund, 1 Nifty Next 50 index fund, 1 Nifty Midcap 150 index fund, and 1 Nifty Smallcap 250 index fund

So what is the difference between the two approaches?

The major difference is in the way how the schemes will invest your money:

  1. Investing in a Nifty 500 index fund: Did you know that as of 29th July 2022, the top 10 stocks in the Nifty 500 Index constituted 38.62% weightage? If we take the Nifty 50 top stocks, their weightage may exceed 50% in the Nifty 500 Index. In such a scenario, you will not get enough exposure to Nifty Next 50, mid and small-cap stocks when you invest in the Nifty 500 index fund.
  1. Investing in four index funds: If you split your money equally among four index funds (1 Nifty 50 index fund, 1 Nifty Next 50 index fund, 1 Nifty Midcap 150 index fund, and 1 Nifty Smallcap 250 index fund), you will get equal exposure to stocks of all four indices.

So, if you are looking for equal allocation to large, mid, and small-cap stocks, investing in them through four index funds is better than a single Nifty 500 index fund.

Investing in India’s top 500 companies with zero overlaps

Let us now understand how you can invest in India’s top 500 companies with zero overlaps. You will have to invest in four index funds:

  1. 1 Nifty 50 index fund: It will give you exposure to India’s top 50 companies (1-50 in terms of market capitalisation)
  2. 1 Nifty Next 50 index fund: It will give you exposure to India’s next 50 companies (51-100 in terms of market capitalisation)
  3. 1 Nifty Midcap 150 index fund: It will give you exposure to 150 mid-cap companies (101-250 in terms of market capitalisation)
  4. 1 Nifty Smallcap 250 index fund: It will give you exposure to 250 small-cap companies (251-500 in terms of market capitalisation)

Nifty 50 index funds

These funds invest in India’s top 50 companies as per their weightage in the Nifty 50 index. Most of these companies are amongst the top 3 companies in their respective sectors. Many of them have a proven track record of profitability and creating shareholder wealth. They are also known as blue chip companies.

Performance of top Nifty 50 index funds

Let us look at the returns of the top 5 Nifty 50 index funds.

Scheme nameAUM (Rs. crores)1-year3-years5-years
IDFC Nifty 50 Index Fund4686.94%17.95%13.48%
UTI Nifty 50 Index Fund7,9416.78%17.69%13.32%
HDFC Index Fund – Nifty 50 Plan6,6246.71%17.54%13.26%
Tata Nifty 50 Index Fund2926.86%17.59%13.26%
Nippon India Index Fund – Nifty 50 Plan5456.75%17.60%13.19%

Source:https://www.moneycontrol.com/mutual-funds/performance-tracker/returns/index-fundsetfs.html). Note: The above returns are as of 26th August 2022. The returns are for direct plans with growth option. The one-year returns are absolute. The three and five-year returns are CAGR.

The above table shows the top 5 Nifty 50 index funds have given a five-year CAGR of around 13%, which is a good return.

Nifty Next 50 index funds

These funds invest in the Nifty Next 50 index companies as per their weightage in the index. These companies represent the next set of large-cap companies (51-100 in terms of market capitalisation) after the Nifty 50 companies. They have the potential to make it to the Nifty 50 in the future. As of 29th July 2022, the Nifty Next 50 index has given a return of 15.50% CAGR since its inception.

Performance of top Nifty Next 50 index funds

Let us look at the returns of the top 5 Nifty Next 50 index funds.

Scheme nameAUM (Rs. crores)6-months1-year2-years
DSP Nifty Next 50 Index Fund2129.46%8.92%24.98%
UTI Nifty Next 50 Index Fund1,8639.33%8.81%24.95%
SBI Nifty Next 50 Index Fund4489.32%8.86%NA
L&T Nifty Next 50 Index Fund559.09%8.45%24.75%
Motilal Oswal Nifty Next 50 Index Fund1249.30%8.71%24.27%

Source: https://www.moneycontrol.com/mutual-funds/performance-tracker/returns/index-fundsetfs.html)

Note: The above returns are as of 26th August 2022. The returns are for direct plans with growth option. The six months and one-year returns are absolute. The two-year returns are CAGR. We have considered returns of up to two years as most Nifty Next 50 index funds have not completed three years since their launch.

The above table shows the top 4 Nifty Next 50 index funds have given a five-year CAGR of around 24%, which is a good return.

Nifty Midcap 150 index funds

These funds invest in the Nifty Midcap 150 index companies as per their weightage in the index. The midcap index represents 101st – 250th companies in terms of market capitalisation. These companies have the potential to grow faster than large-cap companies and create wealth for their shareholders.

Performance of top Nifty Midcap 150 index funds

Let us look at the returns of the top 5 Nifty Midcap 150 index funds.

Motilal Oswal Nifty Midcap 150 Index Fund60715.13%11.85%14.05%
Aditya Birla Sun Life Nifty Midcap 150 Index Fund71.2714.91%11.73%14.04%
Nippon India Nifty Midcap 150 Index Fund46614.96%11.50%13.75%
ICICI Prudential Nifty Midcap 150 Index Fund6115.02%11.58%NA
Navi Nifty Midcap 150 Index Fund17.7614.94%NANA

Source: https://www.moneycontrol.com/mutual-funds/performance-tracker/returns/index-fundsetfs.html)

Note: The above returns are as of 26th August 2022. The returns are for direct plans with growth option. The three, six and twelve months returns are absolute. We have considered returns of up to one year as most Nifty Midcap 150 index funds have not completed two years since their launch.
The above table shows show the top Nifty Midcap 150 index funds have given a one-year CAGR of around 14%, which is a good return.

Nifty Smallcap 250 index funds

These funds invest in the Nifty Smallcap 250 index companies as per their weightage in the index. The smallcap index represents 251st – 500th companies in terms of market capitalisation. These companies are emerging companies. Although they carry the highest risk, they have the potential to grow faster than mid and large-cap companies and create wealth for their shareholders.

Performance of top Nifty Smallcap 250 index funds

Let us look at the returns of the top Nifty Smallcap 250 index funds.

Scheme nameAUM (Rs. crores)6-months1-year2-years
Motilal Oswal Nifty Smallcap 250 Index Fund2744.75%7.20%34.63%
Nippon India Nifty Smallcap 250 Index Fund4004.67%7.37%NA
ICICI Prudential Nifty Smallcap 250 Index Fund555.05%NANA

Source: https://www.moneycontrol.com/mutual-funds/performance-tracker/returns/index-fundsetfs.html)

Note: The above returns are as of 26th August 2022. The returns are for direct plans with growth option. The six months returns are absolute. The one and two-year returns are CAGR. We have considered returns of up to two years as most Nifty Smallcap 250 index funds have not completed three years since their launch.

The above table shows how the top Nifty Smallcap 250 index fund has given a two-year CAGR of around 34%, which is a good return. However, the short-term (six-month and one-year) performance has not been that great due to events such as the Russia-Ukraine war, high inflation, high interest rates, FPI outflows, etc.

Keep your mutual fund investment portfolio simple with index funds

In this article, we discussed how an investment in four index funds could give you exposure to India’s top 500 companies. The best part is there are zero overlaps. Moreover, index funds allow you to invest in these companies at a low cost. So, you can create a simple investment portfolio of four index funds for your financial goals.

Investing in mutual funds with the Glide Invest App In this article, we have understood how a simple investment portfolio of four index funds can give you exposure to India’s top 500 companies with zero overlaps. You can partner with the Glide Invest App for your financial planning journey to get recommendations for the appropriate mutual fund schemes based on your risk profile. You will get advice on planning and systematically investing towards your financial goals.

With Glide Invest, you will get guidance for:

  1. A personalised risk profile assessment
  2. Identifying your financial goals
  3. Appropriate asset allocation
  4. Making a financial plan for each goal
  5. Automating the financial plan
  6. Review and analysis of your financial plan 
  7. Hand holding you till your financial goals are achieved

To start investing towards your financial goals, download the Glide Invest App from Google Play Store or Apple App Store and get started.

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