What is the Nifty Next 50 Index? How Does It Work? Should You Invest?

In this article, we will be discussing the Nifty Next 50 Index, what is it, and how it works. Should You Invest? Get all your answers about this Index in the article, so, let’s get started.

Nifty Next 50 Index:

The NIFTY Next 50 Index represents 50 companies from NIFTY 100 after excluding the NIFTY 50 companies.
NIFTY Next 50 is computed using the free float market capitalization method wherein the level of the index reflects the total free float market value of all the stocks in the index relative to a particular base market capitalization value
Nifty 50 Index can be used for a variety of purposes such as benchmarking fund portfolios, launching index funds, ETFs, and structured products.
Index values are calculated on a Real-Time basis
Index rebalancing is done Semi-annually – March and September

Eligibility Criteria:

Constituents in Nifty 100 not forming part of Nifty 50

Reconstitution & Rebalancing:

Index rebalancing is done on a semi-annual basis in March and September.
The cut-off date is January 31 and July 31 of each year, i.e. For a semi-annual review of indices, average data for six months ending the cut-off date is considered.
Four weeks prior notice is given to the market from the date of the change.
Cumulative weight of index constituents that are not available for trading in the F&O segment (Non-F&O stocks) is capped at 15% on quarterly rebalance dates.
Further, non-F&O stocks in the index are individually capped at 4.5% on quarterly rebalance dates.
Additional index reconstitution may be undertaken in case any of the index constituents undergo a merger, spin-off, delisting, or specific cases of capital restructuring which may result in a change in the stock prices, etc.

Recent Changes- March 2022 & September 2021:

Index Constituents:

The Top-10 Stocks constituents 36% and Top-25 stocks constituents 69.4%.
Here, one should have a close eye on the first 3 constituents of the index i.e., Adani Enterprises Limited, Adani Transmission Limited, and Adani Green Energy Limited which ideally should be part of Nifty 50, but due to F&O criteria discussed above, these companies are not part of Nifty 50 and hence included in this index.

Sector Allocation:

This Index is having highest allocation to the Financial Sector i.e., 17% which is followed by the Services Sector which is having an allocation of 15.2% of the index. The fund is having least allocation of 1.3% in the Automobile sector.

Returns:

Calendar year returns are above calendar returns of Nifty 50 for 3 out of 10 times. The fund has yielded negative returns in 2015 of -3%.

Trailing returns have remained higher than category average and benchmark index in all the periods except for one 1-year, while has performed similarly in the 1 year.
As compared to the Mid Cap Category average, the fund has shown weaker performance by underperforming every year.

In terms of Rolling Return too, the index has mostly underperformed against Mid Cap category average and an average performance against Nifty 50.

Risk Ratio:

The standard deviation of this index is around 21% whereas the standard deviation of the Nifty 50 is around 22%.
The beta of this index is below 1.
The index has also generated Alpha quite very well. PE is similar to the range of Nifty 50.

How to invest in this index?

There is only 1 option available to invest in this index:

What should investors do?

Overall, this Index Fund/ETFs has performed very well as compared Nifty 50 index. It is Index/ETF focused on Nifty Next 50 stocks that too with a lower risky investing approach which focuses on the mid of large and mid-cap stocks hence investors with a moderate-risk appetite can keep this index on their radar, one can choose it according to their risk-taking appetite and return expectation.

Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.