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Is investing in Nifty 100 equal to investing in Nifty 50 + Nifty Next 50?

Is investing in Nifty 100 Index Fund equal to investing in Nifty 50 and Nifty Next 50 index funds? Read this article, to find out.
Index funds investing: Nifty 100 index fund is not equal to Nifty 50 + Nifty Next 50 index funds

Many people who want exposure to Nifty 50 and Nifty Next 50 index stocks think that they can invest in a single Nifty 100 Index Fund, and the results will be the same. Well, that is certainly not the case. In this article, we will understand why investing in a single Nifty 100 index fund is not equal to Nifty 50 + Nifty Next 50 index funds.

Companies covered - The Only thing which makes Nifty 100 = Nifty 50 + Nifty Next 50 true !

The Nifty 50 Index comprises India's 50 largest companies in terms of market capitalisation. The Nifty Next 50 Index comprises India's next 50 largest companies (51st – 100) in terms of market capitalisation. The Nifty 100 Index comprises India's 100 largest companies in terms of market capitalisation. All the stocks present in the Nifty 50 and the Nifty Next 50 indices are a part of the Nifty 100 Index. So, we can say that in terms of the companies covered, Nifty 100 Index = Nifty 50 Index + Nifty Next 50 Index. And, that is where the similarity ends.

  1. Varying weightages

    A company’s market capitalisation is calculated by multiplying the number of shares with the market price per share. A market capitalisation index is constructed by assigning weightages to constituent companies as per their market capitalisation. The Nifty 100 Index is a market capitalisation index, and hence it is skewed in favour of Nifty 50 Index companies due to their higher market capitalisation.

    The Nifty 50 Index companies have around 80% weightage in the Nifty 100 Index. Due to lower market capitalisation, the Nifty Next 50 companies have the remaining 20% weightage only in the Nifty 100 Index. So, the Nifty Next 50 companies don’t get equal representation as Nifty 50 companies in the Nifty 100 Index.

    For example, assume that an investor starts a Systematic Investment Plan (SIP) of Rs. 1,000 in a Nifty 100 index fund. In this case, out of every Rs. 1,000 invested, the investor’s Rs. 800 will be invested in Nifty 50 index companies. Only the remaining Rs. 200 will be invested in Nifty Next 50 index companies.

    Assume the same investor starts 2 SIPs of Rs. 500, one in a Nifty 50 index fund and another in a Nifty Next 50 index fund. In this case, the investor’s money will be equally split in the 50:50 ratio between Nifty 50 Index companies and Nifty Next 50 Index companies.

    The below table shows how an investor’s money is invested when they choose to invest in a Nifty 100 index fund or a combination of Nifty 50 + Nifty Next 50 index funds.

As the Nifty 100 Index is skewed in favour of the Nifty 50 companies, if the share prices of Nifty 50 companies do well, the Nifty 100 index fund investment will give good returns. If the share prices of Nifty 50 companies underperform and the share prices of Nifty Next 50 companies do well, still the Nifty 100 index fund investment will not give good returns. The reason for this is the high weightage of Nifty 50 companies and the low weightage of Nifty Next 50 companies.

  1. Constituent Weightages vary

    In the above section, we saw how the Nifty 100 is skewed in favour of the Nifty 50 companies. It happens because the individual companies have different weightages. Although the Nifty Next 50 Index companies are a part of the Nifty 100 Index, their weightages in the two indices vary.
Company nameWeightage in Nifty Next 50Weightage in Nifty 100
Apollo Hospitals Enterprise Ltd.4.71%0.66%
Avenue Supermarts Ltd.4.27%0.54%
Adani Enterprises Ltd.3.76%0.53%
Info Edge (India) Ltd.3.69%0.52%
Vedanta Ltd.3.62%0.51%
Adani Green Energy Ltd.3.20%0.51%
ICICI Lombard General Insurance Company Ltd.3.01%0.42%
Adani Transmission Ltd.3.01%0.41%
Godrej Consumer Products Ltd.2.87%0.40%
Dabur India Ltd.2.85%0.40%

(Source: NSE website and Mutualfundindia.com)

Note: The above data is as of 30th November 2021.

As seen in the above table, each of the top 10 companies in the Nifty Next 50 Index doesn't even have 1% weightage in the Nifty 100 Index. Hence, to get adequate exposure to Nifty Next 50 Index companies, an investor needs to invest in two separate funds (Nifty 50 index fund and a Nifty Next 50 index fund) and not a single Nifty 100 index fund.

Nifty 100 returns are not equal to Nifty 50 + Nifty Next 50 returns

In the above section, we saw how weightages of the same stocks in the Nifty 100 and Nifty Next 50 are different. Due to the difference in weightages, the returns of these indices are different. Hence, the Nifty 100 Index returns are not equal to Nifty 50 Index + Nifty Next 50 Index returns.

Let us compare the returns of the three indices.

  1. Nifty 100 returns: During the last 15 years (Jan 2006 – Aug 2021), the Nifty 100 Index gave a return of 12.3% CAGR. A monthly systematic investment plan (SIP) of Rs. 10,000 would have grown to Rs. 57.22 lakhs.
  2. Nifty 50 returns: During the last 15 years (Jan 2006 – Aug 2021), the Nifty 50 Index gave a return of 12% CAGR. A monthly systematic investment plan (SIP) of Rs. 5,000 would have grown to Rs. 27.53 lakhs.
  3. Nifty Next 50 returns: During the last 15 years (Jan 2006 – Aug 2021), the Nifty Next 50 Index gave a return of 14.2% CAGR. A monthly systematic investment plan (SIP) of Rs. 5,000 would have grown to Rs. 34.66 lakhs.
IndexSIP amountInvestment horizonCAGRAmount accumulated (Lakhs)
Nifty 50Rs. 5,00015 years12%Rs. 27.53
Nifty Next 50Rs. 5,00015 years14.2%Rs. 34.66
TotalRs. 10,000
Rs. 62.19
Nifty 100 IndexRs. 10,00015 years12.3%Rs. 57.22

(Source: https://www.etmoney.com/blog/nifty-50-nifty-next-50-or-nifty-100-which-large-cap-index-to-pick/)

As seen in the above table:

  1. Nifty 100 returns: If an investor started an Rs. 10,000 SIP in a Nifty 100 index fund, in 15 years, she would have accumulated Rs. 57.22 lakhs.
  2. Nifty 50 + Nifty Next 50 returns: An investor starts two separate SIPs of Rs. 5,000 each, one in a Nifty 50 index fund and another in a Nifty Next 50 index fund. In 15 years, she would have accumulated Rs. 62.19 lakhs (Rs. 27.53 lakhs from Nifty 50 index fund SIP and Rs. 34.66 lakhs from Nifty Next 50 index fund SIP). The Rs. 62.19 lakhs accumulated from a combination of Nifty 50 + Nifty Next 50 index funds is higher than the Rs. 57.22 accumulated from a single Nifty 100 index fund.

The above table shows how returns from a Nifty 100 index fund investment are not equal to returns from a combination of Nifty 50 + Nifty Next 50 index fund investments. Hence, as an investor, you should start two separate SIPs, one each in a Nifty 50 index fund and Nifty Next 50 index fund, rather than a single SIP in a Nifty 100 index fund.

Investing in index funds with Glide Invest App

The above section saw how investors can invest in different index funds depending on their requirements. You can partner with the Glide Invest App for your financial planning journey to get recommendations for the appropriate index funds and other mutual fund schemes based on your risk profile. You will get advice on planning and systematically investing towards your financial goals

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