In the last few years, Large Cap Index Funds have become quite popular among Mutual Fund investors. However, if you have also warmed up to the idea of including low-cost Large Cap Index Funds in your portfolio, there are three indices that you should know about – NIFTY 50, NIFTY 100, and NIFTY Next 50. While all 3 of them are large-cap indices, they are pretty different from one another in how they have been constructed.
In this blog, we will explain all the three indices in detail and look at how they have performed in the past to help you make better-informed investment decisions. In addition, we will address if investing in the NIFTY 100 is exactly the same as investing in NIFTY 50 and NIFTY Next 50 separately.
What Is the NIFTY 100 Index?
NIFTY 100 index is a basket of India’s 100 large-cap companies in terms of full market capitalization.
This full market capitalization is calculated by multiplying a company’s stock price with all of its shares. Here all the shares refer to both active shares readily available in the market and inactive shares such as those stocks held by promoters or the government.
While 100 large-cap companies comprise the NIFTY 100 index, each of the companies has a different weightage in the index. This is because a company’s weightage in the NIFTY 100 index is linked to its market cap. The higher the market cap of a company, the higher its weightage in the NIFTY 100 index.
For instance, HDFC Bank, whose market cap as of August 31, 2021, is around Rs. 8.5 lakh crore, has a slightly higher weight in the index, as against Kotak Mahindra Bank, whose market cap is around Rs. 4 lakh crore. Similarly, both the banks’ individual weight in NIFTY 100 is less than Reliance Industries’ weight whose market cap is around Rs. 15.6 lakh crore.
Weightage Of Top 10 Companies In NIFTY 100 | |
Company’s Name | Weight (%) |
Reliance Industries | 8.42 |
HDFC Bank | 7.95 |
Infosys | 7.29 |
Housing Development Finance Corporation | 5.82 |
ICICI Bank | 5.74 |
Tata Consultancy Services | 4.52 |
Kotak Mahindra Bank | 2.97 |
Hindustan Unilever | 2.8 |
Axis Bank | 2.33 |
Larsen & Toubro | 2.33 |
Data as of August 31, 2021 |
Due to this market cap criteria, all sectors in the NIFTY 100 index do not hold equal weightage. While NIFTY 100 has companies across 17 sectors, it is heavily tilted towards a few sectors like Financial Services, IT, and Consumer Goods. This is because some of the biggest companies that have a considerable weight in this index belong to these 4 sectors.
Weightage Of Sectors in NIFTY 100 | |
Sector | Weight (%) |
Financial Services | 34.68 |
IT | 15.7 |
Consumer Goods | 12.06 |
Oil & Gas | 10.67 |
Pharma | 4.53 |
Metals | 4.36 |
Automobile | 4.25 |
Cement & Cement Products | 2.73 |
Construction | 2.56 |
Power | 2.37 |
Telecom | 2.01 |
Consumer Services | 1.51 |
Services | 0.85 |
Healthcare Services | 0.58 |
Fertilisers & Pesticides | 0.47 |
Chemicals | 0.4 |
Industrial Manufacturing | 0.23 |
Data as of August 31, 2021 |
The index does a rebalancing on a semi-annual basis in June and December every year. Through the rebalancing process, NIFTY 100 removes companies that would have fallen in market cap and adds companies whose market cap has grown larger than them. This means the companies whose stock price dropped significantly are automatically replaced by emerging stocks that would have increased in market cap. This rebalancing every 6 months ensures that NIFTY 100 automatically removes poor-performing companies and includes some of the emerging stocks and sectors.
Returns From NIFTY 100 Index
Given the nature of equity, there have been many ups and downs in NIFTY 100. But over a long period, the index has given stellar returns. In the last 15 years, the NIFTY 100 index delivered over a 12.3% average annual return.
![Nifty 50 vs Nifty Next 50 vs Nifty 100 - Which large cap Index To Pick? (1) Nifty 50 vs Nifty Next 50 vs Nifty 100 - Which large cap Index To Pick? (1)](https://i0.wp.com/cdnlearnblog.etmoney.com/wp-content/uploads/2023/02/SIP-in-NIFTY-100-1024x634.jpg)
As the chart shows, despite various bouts of volatility, a monthly SIP of Rs. 10,000 in NIFTY 100 since January 2006 would have grown to Rs. 57.22 lakh at the end of August 2021.
What Is the NIFTY 50 Index?
NIFTY 50 index consists of India’s top 50 large-cap companies based on their free-float market cap.
This free-float market cap is calculated by multiplying a company’s stock price with its active shares readily available in the market. So, inactive shares or locked-in shares such as those held by insiders, promoters, and governments are not considered in the free-float market cap methodology.
Given the market-cap criteria, the NIFTY 50 index consists of some of the biggest companies in India, which are leaders in their respective sectors. This is because these companies have considerable market share and robust business models. However, each of the 50 stocks in NIFTY 50 does not have an equal weightage in the index due to the free-float market cap criteria.
Therefore, just like NIFTY 100, companies with a higher market cap have higher weightage in the NIFTY 50 index. So, a company like Reliance Industries with the largest market cap will naturally have the highest weight in NIFTY 50.
Weightage Of Top 10 Stocks In NIFTY 50 | |
Company’s Name | Weight (%) |
Reliance Industries | 9.83 |
HDFC Bank | 9.29 |
Infosys | 8.52 |
Housing Development Finance Corporation | 6.79 |
ICICI Bank | 6.7 |
Tata Consultancy Services | 5.28 |
Kotak Mahindra Bank | 3.46 |
Hindustan Unilever | 3.27 |
Axis Bank | 2.73 |
Larsen & Toubro | 2.72 |
Data as of August 31, 2021 |
Moreover, even as all the stocks of NIFTY 50 are also a part of NIFTY 100, their weight in both indices is quite different.
For instance, while the weight of Reliance Industries in NIFTY 50 is around 9.8%, it is slightly lower at 8.4% in NIFTY 100. Similarly, the weight of HDFC Bank, Infosys, HDFC, etc. are also lower in NIFTY 100 as against NIFTY 50. This is simply because the number of companies in NIFTY 100 is higher than NIFTY 50. So, the weight is getting distributed among more number companies in NIFTY 100 as compared to NIFTY 50.
Due to this market cap criteria, all sectors in the NIFTY 50 index do not hold equal weightage as well. While NIFTY 50 has companies across 13 sectors, it is heavily tilted towards a few sectors like Financial Services and IT.
Weightage Of Sectors in NIFTY 50 | |
Sector | Weight (%) |
Financial Services | 37.58 |
IT | 18.01 |
Oil & Gas | 11.39 |
Consumer Goods | 11.05 |
Automobile | 4.58 |
Metals | 3.75 |
Pharma | 3.46 |
Construction | 2.72 |
Cement and Cement products | 2.5 |
Telecom | 2.11 |
Power | 1.55 |
Services | 0.74 |
Fertilisers & Pesticides | 0.55 |
Data as of August 31, 2021 |
Nevertheless, NIFTY 50 and NIFTY 100 have a lot in common when it comes to their rebalancing. Just like NIFTY 100, NIFTY 50 does a rebalancing on a semi-annual basis in June and December every year. This rebalancing every 6 months ensures that NIFTY 50 automatically includes some of the emerging stocks and sectors. First, let’s check how the index has performed over the years.
Returns Of NIFTY 50 Index
Like any equity investment, NIFTY 50’s performance has been quite volatile as well. But over a long time, the index has beaten inflation by a considerable margin. In the last 15 years, the NIFTY 50 index delivered a nearly 12% average annual return.
![Nifty 50 vs Nifty Next 50 vs Nifty 100 - Which large cap Index To Pick? (2) Nifty 50 vs Nifty Next 50 vs Nifty 100 - Which large cap Index To Pick? (2)](https://i0.wp.com/cdnlearnblog.etmoney.com/wp-content/uploads/2023/02/SIP-In-NIFTY-50-1024x634.jpg)
As the table shows, if you would have invested Rs. 10,000 every month in the NIFTY 50 index since January 2006, then your total investment value would have stood at Rs. 55.05 lakh at the end of August 2021.
What Is the NIFTY Next 50 Index?
NIFTY Next 50 consists of 50 large-cap stocks from NIFTY 100 after excluding the constituents of NIFTY 50. These 50 stocks in the Next 50 are also potential candidates for inclusion in NIFTY 50 in the future. In fact, over the last 18 years, more than 40 stocks have been upgraded to NIFTY 50.
Like NIFTY 100 and NIFTY 50, each of the 50 stocks in the Next 50 have different weights due to the market cap criteria. Therefore, the higher the company’s market cap, the higher its weight is in the NIFTY Next 50 index.
Weightage Of Top 10 Stocks In NIFTY Next 50 | |
Company’s Name | Weight (%) |
Apollo Hospitals Enterprise | 4.21 |
Info Edge (India) | 4.02 |
Avenue Supermarts | 3.79 |
Adani Enterprises | 3.67 |
Godrej Consumer Products | 3.5 |
Vedanta | 3.22 |
Dabur India | 3.05 |
Adani Green Energy | 3.01 |
ICICI Lombard General Insurance Company | 2.93 |
Pidilite Industries | 2.92 |
Data as of August 31, 2021 |
In terms of allocation to individual stocks, NIFTY Next 50’s holding is more evenly distributed as against NIFTY 50 or NIFTY Next 50. NIFTY Next 50’s top 10 stocks contribute close to 34% of the index, making it the least concentrated large-cap indices among the three.
Similar is the case with the weight of different sectors in NIFTY Next 50. While the consumer goods sector is the top sector in NIFTY Next 50, the index has a significant contribution from other sectors such as financial services, pharma, consumer services, and metals. In fact, contributions from the top 5 sectors account for nearly 62% in NIFTY Next 50, which is the lowest among the 3 large-cap indices.
Weightage Of Sectors in NIFTY Next 50 | |
Sector | Weight (%) |
Consumer Goods | 18.67 |
Financial Services | 17.04 |
Pharma | 10.84 |
Consumer Services | 10.38 |
Metals | 8.37 |
Oil & Gas | 6.66 |
Power | 5.8 |
Cement & Cement Products | 4.32 |
Healthcare Services | 4.21 |
Chemicals | 2.92 |
Automobile | 2.39 |
IT | 2.03 |
Industrial Manufacturing | 1.7 |
Construction | 1.67 |
Services | 1.54 |
Telecom | 1.46 |
Data as of August 31, 2021 |
Returns Of NIFTY Next 50
The NIFTY Next 50 index has also witnessed various ups and downs. But it has delivered nearly 14.2% average annual return in the last 15 years.
![Nifty 50 vs Nifty Next 50 vs Nifty 100 - Which large cap Index To Pick? (3) Nifty 50 vs Nifty Next 50 vs Nifty 100 - Which large cap Index To Pick? (3)](https://i0.wp.com/cdnlearnblog.etmoney.com/wp-content/uploads/2023/02/SIP-In-NIFTY-Next-50-1024x634.jpg)
To put the returns of this index in perspective, if you would have invested Rs. 10,000 every month in the NIFTY Next 50 index since January 2006, then your total investment value would have stood at Rs. 69.32 lakh at the end of August 2021.
To understand more about the risk-return spectrums of these 3 large-cap indices, let’s look closely at the performance of these indices.
Performance Comparison Of NIFTY 100, NIFTY 50, And NIFTY Next 50
Considering NIFTY 100, NIFTY 50, and NIFTY Next 50 are all large-cap indices, you may expect more or less similar performance from them. However, that’s not the case. All three large-cap indices have a different risk-reward spectrum. While NIFTY 50 and NIFTY 100 are quite similar in terms of their performance, the Next 50 index is an outlier that carries relatively higher risk and has the potential to deliver better returns.
NIFTY 100 Vs. NIFTY 50 Vs. NIFTY Next 50 Returns | |||
Year | NIFTY 100 TRI | NIFTY 50 TRI | NIFTY Next 50 TRI |
2006 | 40% | 42% | 30% |
2007 | 56% | 54% | 74% |
2008 | -53% | -51% | -64% |
2009 | 79% | 72% | 124% |
2010 | 18% | 18% | 16% |
2011 | -25% | -24% | -31% |
2012 | 32% | 29% | 49% |
2013 | 7% | 7% | 4% |
2014 | 34% | 32% | 45% |
2015 | -2% | -4% | -7% |
2016 | 5% | 4% | 7% |
2017 | 33% | 30% | 46% |
2018 | 3% | 6% | -8% |
2019 | 12% | 14% | 2% |
2020 | 16% | 16% | 16% |
The yearly return comparison shows how the returns have been different for these indices at different points in the last few years. So in the 2008 market correction, the Next 50 index fell far more than the other two indices but more than made up for this with 3 digit return in 2009.
To better understand the volatility and in effect the risk levels in these 3 indices, we looked at their standard deviation. Standard Deviation is the statistical measure of volatility and is useful in measuring how widely returns have moved from the average price. If returns move in a narrower range, the standard deviation will be low, indicating low volatility. And if returns move in a wider range, the standard deviation will be high, indicating high volatility.
On this volatility parameter, NIFTY 100 turns out to be the least volatile with a standard deviation of 22.4 since its inception. The Next 50 turned out to be the most volatile with a Standard deviation of 26.7, and for NIFTY 50, the volatility parameter stood at 23.8.
Index | Standard Deviation |
NIFTY 100 | 22.4 |
NIFTY 50 | 23.7 |
NIFTY Next 50 | 26.7 |
This higher volatility in the NIFTY Next 50 is because it acts as a catchment space for stocks growing into the top 50 large-cap categories from being mid-caps. Therefore, during market rallies, some stocks in the NIFTY Next 50 deliver outsized gains. At the same time, the NIFTY Next 50 index also holds those stocks that have dropped out of the NIFTY 50 and those fall more during market corrections.
But in the long run, does the strong performance of NIFTY Next 50 during rallies compensate enough for the sharp falls during market corrections? To find the answer to this question, we looked at the SIP returns of these 3 indices for the period of August 2006 to August 2021.
![Nifty 50 vs Nifty Next 50 vs Nifty 100 - Which large cap Index To Pick? (4) Nifty 50 vs Nifty Next 50 vs Nifty 100 - Which large cap Index To Pick? (4)](https://i0.wp.com/cdnlearnblog.etmoney.com/wp-content/uploads/2023/02/SIP-IN-NIFTY-50-NIFTY-100-and-NIFTY-Next-50-1024x634.jpg)
As the chart shows, the NIFTY 50 index and the NIFTY 100 index seem to be closer overall on returns. The value of your total investment in NIFTY 100 would have stood at Rs. 57.22 lakh at 12.3% average annual return. Similarly, the value of the total investment in NIFTY 50 would have been Rs. 55.05 lakh at around an average annual return of 12%.
On the other hand, total investment in the NIFTY Next 50 index would have been Rs. 69.32 lakh at a 14.2% average annual return.
NIFTY 100 Vs. Combination Of NIFTY 50 And NIFTY Next 50
The biggest misunderstanding related to these 3 large-cap indices is that the NIFTY 100 index is all about a combination of NIFTY 50 and NIFTY Next 50. So many investors feel that instead of investing in 2 indices – NIFTY 50 and NIFTY Next 50 – they can simply invest in NIFTY 100. However, it is not as simple as it looks.
We saw how the market cap methodology determines which stock will have how much weight in all the indices. When you look at the composition of the NIFTY 100 index, it’s a top-heavy index with the top 10 stocks alone accounting for nearly 50% of its total weight.
In fact, the 50 companies that are part of NIFTY 50 account for nearly 80% of NIFTY 100’s total weight. The remaining 50 stocks that are part of NIFTY Next 50 contribute the remaining 20%. Simply put, if you invest Rs. 100 in NIFTY 100, then it is like investing Rs. 80 in NIFTY 50 and the remaining Rs. 20 in NIFTY Next 50.
Another way to look at it is that if the NIFTY 50 does well, then NIFTY 100 will do very well too. But in a hypothetical scenario where NIFTY 50 does poorly, and NIFTY Next 50 does well, NIFTY 100 will do poorly.
How Should You Use These Indices?
Each of the three Large Cap indices has a different return and risk profile. The index you should go for depends on your requirement. For example, if all you need is a simple Large Cap index to substitute an actively managed Large Cap Fund, you can pick Nifty 100 or NIFTY 50.
If you want to take a slightly higher risk than a plain vanilla Large Cap index like NIFTY 100 or NIFTY 50, but do not want to invest in Mid Cap stocks, then NIFTY Next 50 will be suitable for you.
You can also split allocation among these 3 indices. For example, you can have a higher share to the NIFTY 50 or the NIFTY 100 and lower to the NIFTY Next 50 or vice versa, depending on how much volatility you can ride through.
As an enthusiast with extensive knowledge in the field of investment and mutual funds, it's evident that understanding and navigating the complexities of index funds is crucial for making informed investment decisions. The article discusses three prominent indices in the Indian market - NIFTY 50, NIFTY 100, and NIFTY Next 50 - which are particularly relevant for those considering low-cost Large Cap Index Funds in their portfolios.
NIFTY 100 Index:
The NIFTY 100 index represents a basket of India's top 100 large-cap companies by full market capitalization. Market cap is calculated by multiplying a company's stock price with all its shares. The index is weighted based on market cap, meaning companies with higher market caps have a higher weight in the index. Notably, the index is rebalanced semi-annually in June and December to ensure it reflects market changes.
Top 10 Companies in NIFTY 100 (as of August 31, 2021):
- Reliance Industries: 8.42%
- HDFC Bank: 7.95%
- Infosys: 7.29%
- Housing Development Finance Corporation: 5.82%
- ICICI Bank: 5.74%
- Tata Consultancy Services: 4.52%
- Kotak Mahindra Bank: 2.97%
- Hindustan Unilever: 2.8%
- Axis Bank: 2.33%
- Larsen & Toubro: 2.33%
Sectoral Weightage in NIFTY 100 (as of August 31, 2021):
- Financial Services: 34.68%
- IT: 15.7%
- Consumer Goods: 12.06%
- Oil & Gas: 10.67%
- Pharma: 4.53%
- Metals: 4.36%
- Automobile: 4.25%
- ...
The article emphasizes the historical performance of NIFTY 100, indicating a 12.3% average annual return over the last 15 years. It also notes the sectoral concentration, with a focus on Financial Services, IT, and Consumer Goods.
NIFTY 50 Index:
NIFTY 50 comprises India's top 50 large-cap companies based on their free-float market capitalization. Unlike NIFTY 100, the free-float market cap considers only active shares available in the market. The index is also rebalanced semi-annually.
Top 10 Stocks in NIFTY 50 (as of August 31, 2021):
- Reliance Industries: 9.83%
- HDFC Bank: 9.29%
- Infosys: 8.52%
- Housing Development Finance Corporation: 6.79%
- ICICI Bank: 6.7%
- Tata Consultancy Services: 5.28%
- Kotak Mahindra Bank: 3.46%
- Hindustan Unilever: 3.27%
- Axis Bank: 2.73%
- Larsen & Toubro: 2.72%
Sectoral Weightage in NIFTY 50 (as of August 31, 2021):
- Financial Services: 37.58%
- IT: 18.01%
- Oil & Gas: 11.39%
- Consumer Goods: 11.05%
- ...
The article notes the differences in weightage between NIFTY 50 and NIFTY 100, highlighting the influence of the number of companies in each index on individual stock weights.
NIFTY Next 50 Index:
NIFTY Next 50 consists of 50 large-cap stocks from NIFTY 100, excluding the constituents of NIFTY 50. The index is positioned as having relatively higher risk and potential for better returns.
Top 10 Stocks in NIFTY Next 50 (as of August 31, 2021):
- Apollo Hospitals Enterprise: 4.21%
- Info Edge (India): 4.02%
- Avenue Supermarts: 3.79%
- Adani Enterprises: 3.67%
- Godrej Consumer Products: 3.5%
- Vedanta: 3.22%
- Dabur India: 3.05%
- Adani Green Energy: 3.01%
- ICICI Lombard General Insurance Company: 2.93%
- Pidilite Industries: 2.92%
Sectoral Weightage in NIFTY Next 50 (as of August 31, 2021):
- Consumer Goods: 18.67%
- Financial Services: 17.04%
- Pharma: 10.84%
- Consumer Services: 10.38%
- ...
The article points out that NIFTY Next 50 has a more evenly distributed allocation compared to NIFTY 50 and NIFTY 100, making it the least concentrated large-cap index among the three.
Performance Comparison:
The article provides a comprehensive performance comparison of NIFTY 100, NIFTY 50, and NIFTY Next 50, illustrating their risk-return spectrums over the years. It acknowledges that NIFTY 100 and NIFTY 50 exhibit similar performance, while NIFTY Next 50 stands out with relatively higher risk and potential for better returns.
Conclusion and Investment Strategy:
The article concludes by addressing the misconception that NIFTY 100 is a simple combination of NIFTY 50 and NIFTY Next 50. It emphasizes that NIFTY 100 is top-heavy, with the top 10 stocks accounting for a significant portion of its weight. The recommendation for investors is to choose the index based on their risk tolerance and investment goals, suggesting a potential split in allocation among NIFTY 50, NIFTY 100, and NIFTY Next 50.
In summary, the information presented in the article covers the construction, constituents, performance, and risk profiles of the NIFTY 100, NIFTY 50, and NIFTY Next 50 indices, providing valuable insights for investors considering large-cap index funds in their portfolios.