Nifty Next 50 Funds – Nifty Next 50 Mutual funds in 2022
Do you want to invest in current Nifty 50 stocks or future Nifty 50 stocks?
The stocks that will make it to the Nifty 50 in the future are expected to have more growth potential than the current Nifty 50 stocks. You can invest in these future Nifty 50 stocks by investing in the Nifty Next 50 Index. This article discusses the Nifty Next 50 funds, who should invest in them, their performance, and taxation.
What are the Nifty Next 50 funds?
The Nifty Next 50 Index comprises 51st to 100th companies based on market capitalisation. A Nifty Next 50 Index Fund invests in all these 50 stocks in proportion to their weightage in the Nifty Next 50 Index. The Nifty Next 50 Index is a breeding ground for the future Nifty 50 stocks. Most stocks from the Nifty Next 50 Index make it to the Nifty 50 Index in the future.
The Nifty Next 50 stocks carry more risk compared to Nifty 50 stocks. At the same time, the Nifty Next 50 stocks also have more growth potential compared to Nifty 50 stocks.
Nifty Next 50 Index performance
The Nifty Next 50 Index was launched in December 1996 with a base value of 1,000.
As seen in the above chart, in the last 25 years, the index has grown from a level of 1,000 to around 40,000 (Dec 2021), thus multiplying investor wealth by a whopping 40 times. Since its inception, the index has given a return of 16% CAGR.
Who should invest in a Nifty Next 50 Index Fund?
The Nifty Next 50 Index is a diversified index representing companies from 17 sectors (as of Jan 2022). An individual looking for a well-diversified portfolio of large-cap companies (51st to 100th company based on market capitalisation) can consider investing in a Nifty Next 50 Index Fund.
The weightages of companies in the Nifty Next 50 are evenly spread out, with the biggest company having a weightage of only 4.23% (Avenue Supermarts Ltd – as of 23rd Jan 2022). In contrast, the biggest company in the Nifty 50 Index has a weightage of 10.77% (Reliance Industries).
The top 10 companies in the Nifty Next 50 Index have a combined weightage of around 34% only. In contrast, the top 10 companies in the Nifty 50 Index have a combined weightage of around 58%. So, the Nifty 50 Index has a heavy concentration of weightages among the top 10 companies. But, in the Nifty Next 50 Index, the weightages of the top 10 constituents and other companies are more evenly spread out. Hence, investors looking for a diversified index with weightages evenly spread out can consider investing in the Nifty Next 50 Index fund.
How to invest in a Nifty Next 50 Index?
Various fund houses offer index funds or exchange-traded funds (ETFs) based on the Nifty Next 50 Index. To gain exposure to the index, an investor can choose to invest in one of these index funds or ETFs. If you are looking to make regular monthly investments through a systematic investment plan (SIP), you may consider investing in a Nifty Next 50 Index Fund.
Performance of Nifty Next 50 mutual funds
Let us look at the returns of some Nifty Next 50 funds.
|Scheme name||AUM (Rs. crores)||3-months||6-months||1-year|
|UTI Nifty Next 50 Index Fund||1,494||-1.69%||9.33%||25.89%|
|L&T Nifty Next 50 Index Fund||42||-1.72%||9.22%||25.85%|
|DSP Nifty Next 50 Index Fund||173||-1.65%||9.33%||25.83%|
|ICICI Prudential Nifty Next 50 Index Fund||1,868||-1.66%||9.34%||25.73%|
|Motilal Oswal Nifty Next 50 Index Fund||101||-1.67%||9.25%||25.64%|
Note: The returns are as of 21st Jan 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 funds have been ranked based on five-year performance.
Taxation of Nifty Next 50 index funds
Nifty Next 50 index funds are a subcategory under the broad category of equity mutual funds. Hence, the taxation of Nifty Next 50 mutual funds is similar to that of equity mutual funds.
Short-term capital gain (STCG) tax: If you sell your Nifty Next 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 Next 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.