Nifty Next 50 fails to beat Nifty for the last five years: Should I exit?

Published: April 29, 2021 at 12:18 pm

Last Updated on August 22, 2022 at 11:12 pm

The Nifty Next 50 is a unique index. The index can provide joy and frustration in equal measure to its investors. At the time of writing, it has failed to beat the Nifty 50 for the last five years. We address the question asked by two worried investors: is it time to exit Nifty Next 50 (NN50)?

Technically a large cap index, a closer inspection of the impact cost (liquidity) reveals that Nifty Next 50, in fact, a midcap index in terms of risk and reward. Although a market capitalization-weighted index, several of its stocks have nearly equal weight. So unlike the Nifty, which can move up if just the top 3 stocks move up, NN50 requires a lot more of the “next 50” segment to perform.

The underperformance of the Nifty Next 50 stems from the lack of momentum in the Nifty 100 universe aside from the top few stocks of the Nifty from last 2017. Readers may recall our Dec 2019 that the return difference of Nifty 50 vs Nifty 50 Equal-weight index at an all-time high! This was clear evidence that Nifty (or Sensex) returns were propelled only by a few stocks.

Last five years movement of Nifty Next 50 TRI index compared with Nifty Next 50 TRI
Last five years, the movement of the Nifty Next 50 TRI index compared with Nifty Next 50 TRI.

Just three months later, the market crash destroyed the two-year imbalance among Index stocks. The Nifty 50 fell as much as Nifty Next 50 because of this imbalance in March 2020. In Feb 2021, we reported that the Nifty 50 equal-weight index surged past Nifty 50 due to the market rally. As of April 28th 2021, The Nifty 50 and NIfty 100 equal-weight indices have outperformed Nifty 50 and Nifty 100 over the last year (all returns in this article refer to total returns with dividends included).The image below shows the trailing returns as of April 28th 2021.  The entries in red correspond to underperformance. Please note all returns depend on the trailing base date (April 2021) and can be completely different when computed on a different day.


Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
Trailing returns of Nifty 50 TRI, Nifty 50 Equal Weight TRI, Nifty NExt 50 TRI, Nifty 100 TRI and NIfty 100 Equal Weight TRI
Trailing returns of Nifty 50 TRI, Nifty 50 Equal-Weight TRI, Nifty NExt 50 TRI, Nifty 100 TRI and NIfty 100 Equal-Weight TRI

The equal-weight indices have recovered over the last two years, but the Nifty Next 50 is not quite there yet.  If we look at 5-year rolling returns of the Nifty Next 50, this underperformance is not new.

Five year rolling returns of Nifty Next 50 TRI and Nifty 50 TRI
Five-year rolling returns of Nifty Next 50 TRI and Nifty 50 TRI

Between Dec 2012 to about early 2019, the Next 50 index outperformed the Nifty. On either side of this window, the story is similar. If we consider ten-year rolling returns, NN50 has done much better.

Ten year rolling returns of Nifty Next 50 TRI and Nifty 50 TRI
Ten-year rolling returns of Nifty Next 50 TRI and Nifty 50 TRI

The question is, are you willing to beat this pain of underperformance for potential outperformance over longer durations? At this point, it is also fair to ask, why compare Nifty Next 50 and Nifty 50? There is no overlap between them anyway.

As an analyst, yes, the comparison does not make much sense. As an investor, I pay higher fees for the Nifty Next 50 fund (compared to a Nifty 50 or Sensex). I take on a higher risk than the NIfty. So I expect a higher reward. If I do not get it for five years, it is fair enough to wonder if it is time to exit.

The question may be reasonable, but the answer is far from clear. If your goal is several years away and you do not mind holding on, you can wait for the turnaround. It may take a while, though, considering the second wave and the associated economic slowdown.

Some young earners hold too much of Nifty Next 50. If the wait has been frustrating, you can increase exposure to Nifty 50 (assuming these are only two funds you hold!)

This is a perfect example of time risk in stocks. As we have seen before – Timing the market will work but not the way we imagined – a large positive return is followed by a large negative return and vice-versa. However, an extended period of poor returns (in this case, relative) can be quite frustrating. There is nothing wrong with holding Nifty Next 50 in addition to the Nifty/Sensex, but investors must be ready to go through such periods of frustrating underperformance.

Do share this article with your friends using the buttons below.

🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
Follow Freefincal on Google News
Follow Freefincal on Google News
Subscribe to the freefincal Youtube Channel. Subscribe button courtesy: Vecteezy.
Subscribe to the freefincal Youtube Channel.
Follow freefincal on WhatsApp Channel
Follow freefincal on WhatsApp
Podcast: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth! 
Listen to the Lets Get Rich with Pattu Podcast
Listen to the Let's Get Rich with Pattu Podcast
You can watch podcast episodes on the OfSpin Media Friends YouTube Channel.
Lets Get RICH With PATTU podcast on YouTube
Let's Get RICH With PATTU podcast on YouTube.
🔥Now Watch Let's Get Rich With Pattu தமிழில் (in Tamil)! 🔥
  • Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
  • Have a question? Subscribe to our newsletter using the form below.
  • Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.

Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!

About The Author

Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course!  Increase your income by getting people to pay for your skills! More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both the boy and girl-version covers of "Chinchu Gets a superpower".
Most investor problems can be traced to a lack of informed decision-making. We made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So, in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it, as well as teaching him several key ideas of decision-making and money management, is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)