What is Nifty 50?
The Nifty 50, one of the most popular indices used to track the Indian stock market, is a benchmark index that represents the weighted average of 50 of the largest Indian companies listed on the National Stock Exchange (NSE). The stocks in the index, however, do not have equal weightages. This is because companies with a higher free-float market cap enjoy higher weightages in the index.
What historical return has Nifty 50 generated and who can buy it?
Over the last 5 years, Nifty 50 has returned an annualised 11.78% while over a 10-year period it has returned 12.86%. The returns have been volatile and there have been times when it declined 55% in a year, and also rose by 108%. Financial planners believe Nifty 50 works well for do-it-yourself (DIY) investors or those who plan to hold for the long term and do not want any fund manager risk or bias.
How can one buy a Nifty 50 ETF and what is the cost?
Nifty 50 ETF can be bought by any investor on stock exchanges using a broking and demat account. It can be bought live during trading hours and scores over an index fund, which is bought at only the day-end NAV. It is one of the cheapest equity funds that an investor can buy with expense ratio varying between 5 and 15 basis points. The investor has to, however, bear broking and annual demat charges. On the other hand, if you decide to invest directly in stocks depending on their weightages in the Nifty 50 index, it will be expensive and complicated and need a large sum of money as compared to buying a single unit.
How often do the stocks in NIFTY 50 change?
The 50 companies that constitute the Nifty 50 index are not fixed. The index is rebalanced on a semi-annual basis in June and December every year. Through the rebalancing process, the index removes stocks that would have fallen in market cap or those that are delisted or are suspended. These are replaced by ones whose market cap has increased. This rebalancing helps investors as the process increases the exposure of Nifty 50 to emerging sectors and stocks.
