Nifty Next 50 Explained: A Simple Guide For Beginners

The Indian stock market has several indices that help investors track different sets of companies. Among them, the Nifty Next 50 may serve as a bridge between the Nifty 50 and the broader market. This article explains what the Nifty Next 50 index is, how it differs from the Nifty 50, and potential considerations for including it in your portfolio through an index fund.

Table of contents

• What is Nifty Next 50?
• What companies are in Nifty Next 50?
• Nifty Next 50 vs Nifty 50
• Benefits of investing in Nifty Next 50
• How to invest in Nifty Next 50

What is Nifty Next 50?

The Nifty Next 50 is an equity index maintained by NSE Indices. It tracks 50 listed companies that rank immediately after the Nifty 50 companies in terms of free-float market capitalisation. These companies may have the potential to move into the top 50 in the future. The index offers exposure to large companies that are not yet in the very top tier.

What companies are in Nifty Next 50?

The Nifty Next 50 consists of 50 companies listed on the NSE, selected based on free float market capitalisation and liquidity. Constituents change periodically depending on company growth or contraction. Broadly, the index includes firms from sectors such as banking, consumer goods, pharmaceuticals, technology, and industrials. These firms are generally established but not as dominant as Nifty 50 stocks.

Nifty Next 50 vs Nifty 50

The Nifty 50 tracks the 50 largest listed companies and is often used as a core market barometer. The Nifty Next 50 represents the next set of 50 large companies ranked below the Nifty 50.

Because the Nifty 50 holds established names, its returns tend to be relatively stable with smaller swings. The Nifty Next 50 may be more volatile as its companies are still scaling up, but this also means potential returns may be higher during favourable market phases.

Investors may choose to use a Nifty Next 50 index fund to complement Nifty 50 exposure. This combination may broaden sector coverage and balance the relative stability of Nifty 50 with potential growth opportunities from the evolving set of companies in the Next 50.

Benefits of investing in Nifty Next 50

Access to growth potential

The index holds companies that are not yet in the top 50 but may have prospects for growth. Investing through a fund may allow participation in potential upside if some companies scale up and migrate to the Nifty 50.

Diversification beyond top stocks

A Nifty Next 50 index fund may complement an existing portfolio by providing exposure to companies outside the usual large cap set. This may help reduce concentration risk.

Lower cost

Passive index funds generally have lower expense ratios than actively managed funds. Since the objective is to mirror the index, management expenses may be reduced.

Transparent rules and methodology

The index follows defined rules for selection and rebalancing, which may make it easier to understand how constituents are chosen and changed over time.

Potential wealth creation over time

Exposure to companies on the path of growth may contribute to potential wealth creation over a long-term horizon, though fluctuations may be higher over the short to mid-term.

How to invest in Nifty Next 50

You may choose to invest through an index fund or ETF that tracks the Nifty Next 50. Investing a fixed amount at regular intervals through an SIP may help average the overall purchase cost and encourage disciplined investing.

The process generally involves opening an account with a registered mutual fund distributor, online platform, or directly with the fund house. After completing KYC requirements, investors may choose a Nifty Next 50 index fund that aligns with their risk appetite and investment horizon.

Conclusion

The Nifty Next 50 index provides a pathway to access companies that may be on the path to becoming the next Nifty 50 names. An index fund tracking it may offer diversification, lower cost, and potential growth over time, though this may come with higher volatility compared to pure Nifty 50 mutual funds.

If you already hold exposure to Nifty 50, adding a small allocation to a Nifty Next 50 index fund may broaden equity exposure and contribute to potential wealth creation over the long term. Always ensure your choices align with your risk tolerance, financial goals, and investment horizon.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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