All you need to know about- Nifty 50 Index in 2022
All equity funds, by nature, are risky. However, within the equity category, we have mutual funds that are suited to different categories of investors based on their risk appetite. For example, based on market capitalisation, we have small-cap funds for investors who want to take the highest risk and gliexpect the highest returns. At the next level, we have midcap funds for investors who want to take a slightly lower risk, and then we have large-cap funds or Nifty 50 funds for investors who want to take an even lower risk. This article will understand Nifty 50 funds, their features, benefits, & taxation
What are Nifty 50 funds?
A Nifty 50 fund invests in the constituents of the Nifty 50 Index. The Nifty 50 Index comprises India's 50 largest companies in market capitalisation. Most of these companies have existed for many years and have been leaders in their sector. Most of these companies have good profitability and have generated good returns for their shareholders in terms of regular dividends and wealth creation in the form of capital appreciation. These companies are also known as blue-chip companies.
How to invest in Nifty 50 funds?
There are two types of Nifty 50 funds offered by mutual fund houses:
Large-cap funds: Large-cap funds either have the Nifty 50 or the Nifty 100 Index as the benchmark. All the Nifty 50 companies are also a part of the Nifty 100 Index. As per SEBI guidelines, a large-cap fund has to invest 80% of its total assets in equity and equity-related instruments of large-cap stocks. So, a large-cap fund invests most of its money in the Nifty 50 stocks. However, the fund manager decides which company shares to buy, the number of shares to buy, when and at what price. The same applies to selling these shares also. These large-cap funds are also known as active funds.
- Nifty 50 Index funds: The other way of investing in the Nifty 50 Index companies is through a Nifty Index Fund. As per SEBI guidelines, a Nifty 50 Index Fund has to invest a minimum of 95% of its total assets in equity and equity-related instruments of the Nifty 50 Index. A Nifty 50 Index fund invests in all the constituents of the Nifty 50 Index as per their weightage. The fund replicates or tracks the performance of the Nifty 50 Index. These funds are also known as passive funds or index funds.
Who should invest in Nifty 50 funds?
As an investor, if your preference is to invest in large-cap companies, you should invest in Nifty 50 funds. Within the Nifty 50 funds category, you can choose between active and passive funds.
Who should invest in an active Nifty 50 fund?
As an investor, if you are okay with the fund manager deciding which stock to buy, how much, when, and at what price to buy, you can invest in an active Nifty 50 fund or a large-cap fund. The expense ratio of an active fund is on the higher side. The objective of the fund manager is to outperform the Nifty 50 Index. However, the actual returns may be higher or lower than the Nifty 50 Index.
Who should invest in a passive Nifty 50 fund?
If you want to invest in all the 50 companies that are a part of the Nifty 50 Index in the same proportion as their weightage in the Nifty 50 Index, you can invest in a Nifty 50 Index Fund. The expense ratio of a passive fund is on the lower side. The fund manager’s objective is to replicate the performance of the Nifty 50 Index. However, the actual returns may be slightly lower than the benchmark index due to the expense ratio and tracking error.
Best Nifty 50 mutual funds
Let us look at the returns of some Nifty 50 funds.
|Scheme name||AUM (Rs. crores)||1-year||3-years||5-years|
|IDFC Nifty Fund||356||25.93%||20.48%||17.95%|
|Taurus Nifty Index Fund||1.71||25.85%||20.09%||17.89%|
|UTI Nifty Index Fund||5,841||26.26%||20.40%||17.88%|
|HDFC Index Fund – Nifty 50 Plan||4,433||26.18%||20.25%||17.81%|
|Nippon India Index Fund – Nifty Plan||427||26.15%||20.27%||17.78%|
Taxation of Nifty 50 funds
Nifty 50 funds are a subcategory under the broad category of equity funds. Hence, the taxation of Nifty 50 funds is similar to that of equity funds.
Short-term capital gain (STCG) tax: If you sell your Nifty 50 mutual fund units before 12 months, the capital gain will be classified as short-term capital gain (STCG). The STCG will be taxed at 15%.
- Long-term capital gain (LTCG) tax: If you sell your Nifty 50 index fund units after 12 months, the capital gain will be classified as long-term capital gain (LTCG). The LTCG of up to Rs. 1 lakh in a financial year will be exempt. The incremental LTCG above Rs. 1 lakh in a financial year will be taxed at 10% without indexation benefit.