What is the Nifty Next 50 Index: Constituent Stocks, Sectors, and Returns

Additionally, one should keep in mind that all 50 companies featured on the index are not equally important and that’s the reason why each constituent stock is assigned a different weight on the Next 50 Index. Below is a list of the stocks that have the highest weight on the Nifty Next 50 Index:

Advantages of Passive Investing in Nifty Next 50

Investors can make the most of the compelling advantages if they invest in the Nifty Next 50 Index via passive investment options like an exchange traded fund or an Index Fund. Below are some key benefits of these investment plans:  

Low Cost

A mutual fund is considered passive if it tracks the Nifty Next 50 index and mirrors the underlying index’s performance. This suggests that less research, trading, or active funds management will occur leading to lower management expenses. Thus the expenses ratio of such mutual funds is lower than actively management schemes, which can help investors earn higher net returns.

Liquidity

A mutual fund or ETF that tracks the Next 50 Index is also traded on the stock exchange allowing investors to sell and buy units of the fund any time they want. These schemes also do not have any lock-in period and exit load, allowing investors to maximize the convenience and flexibility of entering and exiting the investment at their convenience.

Diversification

Around 50 companies across different industries are in the Nifty Next 50 index. The limited concentration of specific sectors in the fund or ETF portfolio limits concentration risk. Investors can thus get access to a diversified stock portfolio by investing in the Nifty Next 50 Index.

Tax Efficiency

Another lucrative advantage of Nifty Next 50 is that it is tax efficient. A mutual fund is considered an equity-oriented fund if it tracks the Nifty Next 50 index. LTCG (long-term capital gains) exceeding ₹1 lakh in one financial year incurs 10% tax in the incremental amount, which is exclusive of surcharge and cess. On the other hand, short-term capital gains undergo taxation at a rate of 15% on returns. Also, these tax rules for mutual funds are only applicable at the time of redemption of scheme units. 

Difference Between Nifty 50 and Nifty Next 50

The most notable difference between Nifty Next 50 and Nifty 50 is the liquidity and size of the companies which these indexes comprise. Large-cap companies are there in the Nifty 50, these companies have highest free-float market capitalization. Besides, these are well-established and largely traded. On the other hand, Nifty Next 50 features the relatively smaller large-cap companies. These companies have lower market capitalization as compared to the Nifty 50 stocks hence they have a higher growth potential in comparison.

Due to larger size of constituent companies, the Nifty 50 index is less volatile and more stable than the Nifty Next 50 counterpart. However, investors cannot expect the same high growth potential as compared to the Nifty Next 50 Index stocks.

Secondly, there is a difference between the concentration and sectorial composition of Nifty Next 50 and Nifty 50.  A few sectors, like information technology, financial services, energy, consumer goods, etc., dominate the Nifty 50 index. On the contrary, the sectorial distribution for Nifty Next 50 is more balanced and it contains stocks from sectors like utilities and materials, healthcare and industrials, etc. that are not available if one is exclusively investing in the Nifty 50 Index.

In addition, you will get to see higher concentrations of companies like HDFC bank, TCS, reliance industries, etc., in Nifty 50. All these 4-5 large company stocks combine to form approximately 40% of the overall index weightage. However, you will not find an equally concentration of the top 4-5 companies in the NiIfty Next 50 as their combined weight is approximately 20%. So, the concentration risk with respect to individual stocks is lower in the case of the Next 50 Index.  

Investors who intend to invest in India's equity market via ETFs or mutual funds should know these key differences between Nifty Next 50 and Nifty 50. Before investing in any of the indexes or both the indexes, investors must consider the Nifty Next 50 return expectations, diversification requirements, risk appetite, and the horizons of the investment.  One with a higher risk can go for Nifty Next 50, whereas those who prefer lower risks and stability must go for Nifty 50. Nifty Next 50 and the Nifty 50 together form the larger Nifty 100 which represent the 100 largest listed company stocks on the NSE. 

Historical Returns of the Nifty Next 50 Index

Below are the historical 1 year, 5 year and since inception returns of the Next 50 Index as of 31^st August 2023:

As you can see, the returns of the Next 50 Index are significant lower than small cap indices like the Nifty Smallcap 250 Quality 50 Index for comparable time periods.  

Frequently Asked Questions (FAQs)

Q. Can I directly invest in Nifty Next 50 stocks?

Yes, since all 50 stocks in the Next 50 Index are listed on the NSE, you can individually invest in these stocks individually if you have an active demat and brokerage account.  

Q. Are there are any ETFs or Index Funds that mirror the Next 50 Index?

Yes, a number of fund houses in India offer exchange traded funds and index funds to investors who want to make passive investments in the Nifty Next 50 Index.

Q. Are Nifty 50 constituent stocks considered large cap or small cap investments?

As per SEBI definition, large cap stocks are the listed companies ranked 1^st to 100^th in terms of free float market capitalisation. Since the constituent stocks of the Nifty Next 50 are the listed stocks ranked between 51^st and 100^th on the basis of free float market cap, these are considered as large cap stocks.

Q. Can a midcap stock be included in the Nifty Next 50 Index?

Yes, but only if, the market cap of the midcap stock grows sufficiently to be ranked between 51^st and 100^th on the basis of free float market cap. But at that point the midcap stock will be upgraded to a large-cap stock. This inclusion can only occur as part of the bi-annual rebalancing of the index.

Q. Is there risk when investing in a Nifty Next 50 Index Fund?

Yes, since a Nifty Next 50 Index Fund is a large-cap equity-oriented investment, it will carry all the key risks that are associated with any equity mutual fund investment. Potential investors should keep this in mind before they invest in these index funds or ETFs.