Last Updated on June 28, 2020
Readers may be aware of the recent studies in which we identified only three midcap funds and only three small cap funds managed to beat the Nifty Next 50 consistently in the last few years. While this is a clear case of investing in the Nifty Next 50 index funds, readers must be aware of the associated risks.
One does not need to look far to appreciate this risk. The last 3Y return of ICICI Nifty Next 50 index fund is 0.02% (-0.38% for geniuses who use regular plans for index funds). The last 5Y return is 6.4%. The last 10Y return of Nippon India ETF Junior BeES is 9.3% (using ETF price).
This alone should justify the title of the post, but only for those who are not in denial -” stop calculating returns after a crash, it would obviously be lower!” Maybe an analyst working for an AMC can pick and choose when to calculate returns, but real life is quite different.
Here are some facts about the Nifty Next 50. The index has a base date of November 4th 1996 (price = 1000) and an inception date of December 24th 1996. Source: Factsheet. However, the total returns index data is available only from 08-11-2002.
On November 25th 2008, after the global financial crisis, the index fell to 332, equivalent to -12% annualised return after 12 years. On March 23rd 2020, the 10-year NN50 TRI returns dropped to 7%. This is the second time in about nine years that the return has dropped below 10%.
Just how volatile the Nifty Next 50 can be, is evident from this normalised comparison of Nifty 50 and Nifty Next 50 total return indices from November 8th 2002. What moves up, also falls more.
The ten-year rolling return history of Nifty 50 and NIfty Next 50 shows a similar trend. See: 15-year Nifty SIP returns crash to 8% (51% reduction since 2014). Not have both fallen over time, the gap between Nifty Next 50 and Nifty 50 periodically drops to zero.
What does all this mean for an investor? Do not rush to conclude that actively managed funds are better. They are not. When you add NN50 into a portfolio, you increase its risk for sure all the time. You will not get a commensurate reward all the time.
So do not invest in Nifty Next 50 expecting double-digit returns. The additional risk from NN50 must be periodically rebalanced with both Nifty and debt. You can do this either systematically or tactically. We shall discuss these aspects in future articles.
How to profit from content writing: is our new ebook for those interested in getting side income via content writing. It is at available at a 50% discount for Rs. 500 only!
Use our Robo-advisory Excel Template for a start-to-finish financial plan!
Join our courses in exclusive Facebook Groups!
- 520+ members are now part of our new course: How to get people to pay for your skills! (watch 1st lecture for free). 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 how to achieve by showcasing your skills and building a community that trusts you and pays you!
- Goal-based portfolio management! Join 2125+ members and get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free! One-time payment of Rs. 3000 only. No recurring fees! Life-long access to videos (10+ hours content) in an exclusive Facebook Group! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!) or you buy the new Tactical Buy/Sell timing tool!
We publish mutual fund screeners and momentum, low volatility stock screeners .every month.
About the Author
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. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations based on money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association, IIST Alumni Association. For speaking engagements write to pattu [at] freefincal [dot] comAbout freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only 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
- Twitter @freefincal
- Subscribe to our Youtube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions, seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, 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 199 (instant download)Free android apps
- All calculators from our book, “You can be Rich Too” are now available on Google Play!
- Install the Financial Freedom App! (Google Play Store)
- Install Freefincal Retirement Planner App! (Google Play Store)
- Find out if you have enough to say "goodbye" to your employer (Google Play Store)