The Nifty 50, the most popular Indian stock market index, represents 50 of the largest Indian companies on the National Stock Exchange, accounting for about 59 per cent of the market capitalisation.
Directly investing in these stocks based on their NIFTY 50 weightage can be expensive and complicated. Alternatively, you can consider index funds Exchange Traded Fund (ETF) to invest in Nifty 50 companies.
Nifty 50, which began in November 1995 with a base value of 1000, took around 21 years and nine months to reach 10,000 in 2017. From 10,000, it took another six years and 1.5 months to reach 20,000. During this time, it became the most widely used benchmark for exchange-traded products on the Indian equity market, NSE said on its website.
Here are two main ways to invest in Nifty 50 stocks.
These are easy to buy and sell and mirror NIFTY 50’s performance. Essentially, they are mutual funds because they collect money from different investors, but they are traded like stocks, and domestic ETFs require a demat account. Unlike index funds, they don't offer SIPs, but some brokerages allow systematic investment plans (SIPs).
When considering 18 NIFTY 50 ETFs, three types are listed on the AMFI website. These include Nifty 50 ETFs tracking the NIFTY 50 Total Return Index, ETF Nifty 50 BeES, which also follows the NIFTY 50 Total Return Index, and Nifty 50 Equal Weight ETF, monitoring the NIFTY 50 Equal Weight Total Return Index. The Equal Weight Index differs from the market capitalisation-based parent index by providing equal weight to all included companies, but both invest in Nifty 50 stocks.
Notably, the Equal Weight ETF has outperformed its competitor Nifty 50 ETF, offering close to 15.15 per cent return in one year, compared to the benchmark's 15.54 per cent. Meanwhile, the Nifty 50 ETF has provided nearly a 9.50 per cent return, subject to tracking errors in line with its benchmark.
Compared to index funds, NIFTY 50 ETFs have lower tracking record errors and marginally higher returns. However, as only regular plans are available, it can be more expensive with brokerage fees.
Open a Demat and Trading account with a broker offering NIFTY 50 ETFs.
You can fund your Demat account through online banking.
Select the specific NIFTY 50 ETF you wish to invest in.
Set up a SIP (Systematic Investment Plan) with your broker, specifying your investment amount, frequency, and duration.
The investor will receive ETF units in their Demat account.
These mutual funds replicate the Nifty 50 index and also offer SIP options. You can invest as low as Rs. 500 a month and own all 50 NIFTY 50 stocks in the same proportion as the index. The fund manager's main task as a passively managed fund is to minimise tracking error, ensuring the fund's performance closely matches the index.
Regarding NIFTY 50 Index Funds, the Association of Mutual Funds in India (AMFI) website lists 16 options categorised into two types. These include Nifty 50 Index Funds, which track the NIFTY 50 Total Return Index, and Nifty 50 Equal Weight Index Funds, following the NIFTY 50 Equal Weight Total Return Index. Notably, the Nifty 50 Equal Weight Index Fund has shown strong performance, delivering a return of nearly 15 per cent in one year, in line with its benchmark's 15.54 per cent. In contrast, the Nifty 50 Index Fund has provided approximately 9.50 per cent.
Investors can invest directly in Nifty 50 Index Funds through mobile applications offered by asset management companies. After downloading the respective mobile app, register by providing the necessary contact information. Complete the e-KYC procedure, and then start investing.
