Nifty 50 is an Indian
benchmark index. It represents the weighted average of the 50 largest companies
listed on the National Stock Exchange (NSE). The term Nifty 50 is
a combination of National Stock Exchange and Fifty (50). Nifty 50 is also known
as CNX Nifty. In simple terms, the Nifty 50 is a collection or a basket of the 50
most active stocks on the NSE. Nifty 50 acts as a barometer for the overall
movement of the stock market. Nifty 50 indexes is widely used by mutual fund
companies as a benchmark to track the performance of actively managed
Nifty 50 indexes were
launched by the NSE on 22nd April 1996. It
is owned and managed by Index and Services and Products Ltd (IISL). IISL is a
wholly-owned subsidiary of NSE Strategic Investment Corporation Ltd. The total market
capitalization of the Nifty 50 companies is a staggering Rs 1, 27,83,812
crores. Nifty 50 is one of the most actively traded contracts in the world.
In 2021, the Nifty 50 is
in its 25th year. The below timeline shows
Nifty 50’s major milestones in the last 25 years.
The stocks in the Nifty 50 index keep on changing. In fact, there
has been a visible yet gradual change in the composition of the Nifty 50 index.
In 1995, the financial services sector had a 19.70% weightage in the
index. This increased to 37.23% in 2021. Similarly, Information and
Technology (IT) companies had no place in the index in 1995. But today, IT
sector has the second-highest weightage of 17.41% in Nifty 50. This change in
the stocks of the Nifty 50 reflects the change in India’s economy from
manufacturing to service-based.
The table below shows the change in the composition of the Nifty 50
index between 1995 to 2021.
*Green denotes increased weightage and red denotes decreased allocation.
**2021 data is as of 30th September 2021 Source: NSE India
*Portfolio as of 30th September 2021
*As of 30th September 2021
Nifty 50 has the highest exposure to the financial sector (37.23%) and the IT sector (17.41%). Let us now take a detailed look at the 50 companies in the Nifty 50 Index.
*Data as of 13th October 2021
*Data as of 30th September 2021
Nifty and Sensex are two of the most popular indices in India. But there are numerous more indices which are an extension of the Nifty 50 index.
The success and performance of the Nifty 50 index have resulted in the introduction of various Nifty sectoral indices. While the Nifty 50 index focuses on the bluest of the bluechip stocks, these nifty sectoral indices track different sectors and themes. Some of the common NIFTY indices are:
There are many ways in which investors can invest in Nifty 50.
*Data as on 13th October 2021 **1-year returns are absolute returns. Returns greater than one year are CAGR returns.
Th Only Disadvantage of Nifty 50 Index Mutual Fund
The only disadvantage of index mutual funds is that due to the passive management, the fund manager might have to give up lucrative investment opportunities. This is clearly visible in the difference in returns generated by active and index mutual funds. Let us revisit the Axis Bluechip Fund and HDFC Index Fund – Nifty 50 Plan example.
Even though they are tracking the same index, the fund manager of Axis Bluechip Fund has the freedom to alter the fund’s allocation to high-performing stocks. This is why the fund has managed to outperform HDFC Index Fund – Nifty Plan consistently over the long term. This is why a healthy mix of active and passive funds in your portfolio is a must.
The chart below shows the performance of Nifty 50 index.
Source: NSE India *Data as on 30th September 2021
In the last 25 years, the Nifty 50 has given negative returns only 5 times. This is proof that the Nifty 50 is one of the best avenues to create long-term wealth. But it hasn’t been a smooth-sailing journey for Nifty 50.
The 2008 crash was the worst year for Nifty 50 as it fell by -51.79%. But in the very next year, the Nifty 50 index gave a return of 75.76%. The table below shows the major single-day falls and gains of the Nifty 50 index.
Nifty 50 is an allrounder as it is suitable for investors with various risk profiles. For instance, if you are an aggressive investor, then you can directly invest in Nifty futures and options. If you are a moderately aggressive investor then Nifty BeES might be apt for you. Even if you are a conservative investor, you can still participate in Nifty’s growth via an index mutual fund. But to do all this, you will first need a Demat account. So, stop procrastinating.
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