Should I go for a Nifty 50 index fund or a Nifty Next 50 index fund?

Through Kite, I hold some of the HRITHIK stocks and most of the MFs also hold some of the HRITHIK stocks although in various combinations.
So to have some exposure to NN50 stocks and minimize risk, I chose the UTI NN50 Index fund.
Is my approach correct ? Are there any other better options ? @rupeshmandal @TradeXMaster
Which index fund is better to hold N50 & NN50 ?

Yea. That’s a good choice. Your portfolio gets good exposure with that. There are some ETFs for next 50 Index. Anyway index funds itself is a good choice.

Next 50 Index is more volatile than nifty, the current situation is itself a very good example.

But do not consider next 50 Index as a hedge.

1 Like

what is hedging ? how to hedge NN50 ?

P.S.: I am not going for a hedge, just curious since you mentioned.

ETFs are traded like stocks(there are fluctuations intraday) and sometimes liquidity is an issue. So, I had chosen index MF.

Please correct me if I am wrong.

  1. Is there any way to exploit the ETF fluctuations and succeed every time(buy the ETF at a lower price) in case of SIPs, let’s say monthly twice.

  2. ETF is regarded as spoilt for choice and Index MFs are comparatively less cumbersome. What is your take on that ?

These are my personal views and I am invested in these two ETF

SBI ETF Nifty 50 and SBI ETF Nifty next 50.

Like a parrot, I keep repeating that I am a investor and hence these small time fluctuations in ETF price does not bother me. My decision making to buy is solely based on what happens to my average price of the ETF and for this Rs. 1 or 2 does not really matter to me. I do check the iNAV as well. I am sure if I keep worrying about these small time variations, I will be losing the bigger picture. This has been true since I started investing in these two ETF.

By investing in these two funds, I achieve MY objectives

  1. I am investing in India’s top 100 companies i.e India’s top businesses. That is it. Nothing else.
  2. By investing in Nifty Next 50, 60% is large cap, 32% is midcap and others is around 8%. To me this is an ideal mix.
  3. I have opted for ETF and not for Index fund because apart from investing in ETF, I invest directly into stock market. Also the commission on ETF is relatively lower.
  4. If these companies in the Index collapse, then there would not be any stock market or any bank or anything. This is the maximum I can get now, there are no companies higher than Nifty 50. I am not into searching for multi baggers or trying to find the next HDFC among the small finance bank. I leave it to others and in case one becomes a multi bagger it will anyway find a place in Nifty 50 or Nifty next 50. My return expectations are moderate.
  5. Although ETF or Index is passive investing, rebalancing do happen and the laggards are thrown out and new companies are brought it automatically. Hence companies in this Index will always be the top class corporates of India.

For the risk of buying ETF vs Index fund, I think Varsity has a great paper on the same. With SBI ETF, I did not find any issue with liquidity till date. The AUM of Nifty 50 is over 1 lacks crore whilst for Nifty next 50 etf is 954 crore. I believe in SBI when compared to other private players, hence the choice of SBI as AMC.

I have taken these decisions as it matches well with my strategy and it need not meet others.

Disclaimer: Strongly biased towards these two index etf and hence take whatever is written with a ton of salt.

1 Like

Nippon India is also pretty good. @neha1101
Personally, I have never faced any liquidity issues in ETFs. @sriramnpkt

@neha1101 Great explanation. I agree with lot of things said in the post, but differ on some aspects. Just putting forward my views on some points (I am not arguing, just looking for healthy discussion)

I don’t think this split is correct. As per SEBI classification Top 100 mcap stocks are considered large cap, which is basically Nifty 50 + Nifty Next 50. There might be very few midcap name in NN50, but my guess would be less than 10%. So NN50 is almost 90% large cap, you don’t get any diversification on mcap and it not ideal mix.

I totaly do not believe in govt run companies (personal view) and all the more not in SBI Nifty ETF.
SBI Nifty ETF AUM is mainly driven by EPFO subscription (that’s why it is 1 lakh crore), and so are their policy. Last year they declared special dividends to give some cash out to EPFO (dividends in ETF is unheard of phenomenon and nobody does that).
End result EPFO got much needed cash, retail investor got unnecessary tax bill (dividends are taxed at slab, LTCG at 10%)
There is no guarantee that this won’t repeat. So I would rather stay away from SBI ETFs.

I would suggest 50:50 in both :slight_smile:

Think of it this way.

Nifty 50 funds hold the 50 largest companies and this is a pure large-cap index. Nifty Next 50 holds the next 50 biggest companies after Nifty Next 50. Though it is categorized as a large-cap index, it’s not accurate. It’s as good as a mid-cap index and if you compare Nifty Next 50 and Nifty Midcap150, the performance is quite similar.

Now, if you compare these two funds/indices based on returns, Next 50 looks amazing. But that only tells half the story.

The other side is the risk. Like I mentioned, Next 50 is as good as a mid-cap index and it can be quite risky. Check out the drawdowns of Nifty 50 and Nifty Next 50. Next 50 is quite risky.

Now you just invest in Nifty 50 if you don’t want too much risk. If you’re ok with some more risk, you can mix Nifty 50 and Next 50 in whatever proportion that you’re comfortable with.

2 Likes

When a detailed breakdown of the stocks in Nifty Next 50 is taken from money control, the mix is as I had mentioned in the earlier post. Not sure if there is any other method used or money control is wrong in classifying stocks as large or midcap. Tried to search alternate sites which provides breakdown like money control, but could not find one. However, when checking Icici pru nifty next 50 from money control the constitutents are the same.

Disc: These are my personal views

1 Like

Yes constituents are correct, classification provided on Moneycontrol is incorrect.

Lot of name listed as midcap in Moneycontrol site are Large Caps.
For eg. all below names are actually Largecaps

AMFI, which is umbrella body for all MF provides a periodic list of stock classification based on SEBI regulations
https://www.amfiindia.com/research-information/other-data/categorization-of-stocks

This can give clear picture.

And if you don’t really want to go through trouble, thumb rule is, as per SEBI top 100 mcap stocks are large caps, next 150 midcaps and so on.
Since Nifty 50 + Nifty Next 50 is basically top 100 stocks, they represent almost entire large cap universe (this is thumb rule, some variation is expected based on index methodology, but overall good estimate)

1 Like

Does Nifty Midcap 50 represents top 50 companies in the Midcap space. I have seen few midcap 150 etf, but nothing to relate to top 50 midcap names. Are you aware of any Midcap ETF restricted to 50 top companies in midcap space.
All this time, I was of the view I had some exposure to midcap names. Thanks to money control who screwed up this notion.

1 Like

yes

Nope, haven’t come across one yet. I think Motilal Oswal had something like M100 but not sure how it is doing. As such before investing any such exotic midcap etf, be sure to check it’s liquidity. Otherwise impact cost would be very high in midcap etf.

Well I wouldn’t totally discard that. As bhuvan also explained in earlier post, NN50, though a largecap index, behaves more like midcap index. So NN50 offers similar risk reward to what a midcap etf would offer.
But yes, technically you don’t have exposure to midcap.

1 Like

can you explain what is drawdown ?

1 Like

Thanks for detailed analysis @Bhuvan
Does it mean that if I hold for longer duration probability of NN50 returns will be more than N50?

May be rolling returns chart for 7 years and 10 years will throw more light, if long holding period overcomes volatility [in positive sense]

7year rolling returns
https://www.advisorkhoj.com/mutual-funds-research/rolling-return-multiple-benchmark?scheme=NIFTY%2050%20TRI,Nifty%20Next%2050%20TRI&period=7%20Year&start_date=01-01-2003

10 year rolling returns
https://www.advisorkhoj.com/mutual-funds-research/rolling-return-multiple-benchmark?scheme=NIFTY%2050%20TRI,Nifty%20Next%2050%20TRI&period=10%20Year&start_date=01-01-2003

15 year rolling returns
https://www.advisorkhoj.com/mutual-funds-research/rolling-return-multiple-benchmark?scheme=NIFTY%2050%20TRI,Nifty%20Next%2050%20TRI&period=15%20Year&start_date=01-01-2003

ok… basically, if I am willing to hold for longer duration, NN50 has performed better.

image
Just search it on the internet. You’ll get it.

The maximum fall from a peak to the bottom

Nobody knows the future :slight_smile: But that would be a reasonable assumption. But keep in mind, Nifty Next 50 is risky and can go a long time under performing Nifty 50. For example, last 5 years, Nifty Next 50 has under performed Nifty 50

2 Likes

@neha1101 was reading some article on moneycontrol and they showed a chart of midcap constituents in ICICI NN50 Index fund.
Currently it is hovering around 10%.

Sharing as I thought it would be useful information for this discussion.

1 Like

Here is an article to give a clear picture: