Eight ways to combine Nifty Next 50 with active funds

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Interest in the Nifty Next 50 (NN50) has increased over the last couple of years due to its fantastic track record against many diversified equity mutual funds: Nifty Next 50: The Benchmark Index That No Mutual Fund Would Touch?! However, the NN50 is a volatile index with a huge peak to low falls (drawdown). So naturally, investors are scared to hold this fund. Here are eight ways to invest to combine Nifty Next 50 with actively managed funds to balance volatility with performance.

The ideal single index fund to hold would be the Nifty 100 (N100),  but it is unlikely that AMCs will ever make an index fund out of this. Many assume that N100 will be hard to beat after the SEBI categorization rules. The truth is that N100 was hard to beat even before!

The next best solution would be a combination of Nifty 50 and Nifty Next 50 as shown here: Can I start Index investing with 50% Nifty 50 and 50% Nifty Next 50? It does not have to be 50;50. You can change the allocation as per your risk perception. We have also discussed the best way to invest in Nifty Next 50 Index and this can be applied to N50 as well.

In case you do not want to do this, then here are eight ways to combine index funds with active funds. You can choose either UTI or ICICI Nifty Next 50 Index funds. Do not assume lower expenses implies higher returns. The UTI fund needs a little more time to prove that, though it is fine picking that as well.

Eight ways to combine Nifty Next 50 with active funds

Eight ways to combine Nifty Next 50 with active funds
Flaming cocktail. Source: Wikipedia

The following is arranged in terms of increasing volatility of the active fund. Conservative investors can choose 60% active and 40% NN50. Others can have higher NN50 exposure. Please choose direct plan, growth option for all.

1 ICICI Multi-asset fund + Nifty Next 50

This was previously called ICICI Dynamic fund and used a Price to Book value based timing model to determine equity allocation. It will continue to do the same but shall hold at least 10% equity and gold at all times. Considering its large AUM, it will be taxed as equity (using arbitrage where needed).

2 ICICI Balanced Advantage fund + Nifty Next 50

As I have shown a couple weeks ago, ICICI Prudential Balanced Advantage Fund combines performance with low volatility  This will also follow the PB based strategy as above but without the gold and a higher min allocation to bonds.

3 ICICI Equity & Debt Fund + Nifty Next 50

Again as shown recently, ICICI Prudential Equity &; Debt Fund (ICICI Balanced) has an excellent track record. It is higher risk higher reward product when compared to 1 and 2.

Why so many ICICI funds? Why not? If you don’t like it, pick something else, not on me.

4 Parag Parikh Long Term Equity Fund + Nifty Next 50

This fund (PPFAS) will give you a value flavour plus international equity exposure and cash holding depending on market conditions. All these results in lower volatility and decent performance. See: Parag Parikh Long Term Equity Fund Review

5 Quantum Long Term Equity + Nifty Next 50

QLTE is a fund that towers about the rest in a bear market and does about average in a bull market. If you value lower portfolio volatility then this will balance Nifty next 50 quite well.

6 ICICI Value Discovery + Nifty Next 50

One of the finest value funds in the country, its bond allocation has increased from (0-20%) to (0-35%) and now can invest in derivatives up to 100% of the portfolio and even foreign securities. This fund will test your patience (well most of the above funds, would!) though and you have to stay put.

7  Franklin India Taxshield + Nifty Next 50

If you want an ELSS fund (if you actually want it, meaning if your asset allocation permits it), this is an old, consistent and low volatile performer from Franklin which is part of my Handpicked Mutual Funds September 2018 (PlumbLine) – A 2019 edition is coming soon.

8 HDFC Midcap Opportunities + Nifty Next 50 (or Nifty 50)

This is only for those who feel that their goals are decades away and therefore can handle the extra risk by taking on a midcap fund. As shown recently, HDFC Mid-Cap Opportunities Fund has an excellent track record. However, be warned that this combination will be super volatile and that does not or need not mean super rewarding.

You can instead try HDFC Midcap opp + Nifty 50 for more stability.

Summary

Clearly, what I have done above is a no-brainer and you come up with any number of such combinations if you wish one to be Nifty Next 50. Of course, that is also not necessary as shown here: Should I now shift active mutual funds to index funds? A step by step guide.

Every week there will be a new finding and one should not get swayed by it. While we must change our opinions when facts change, it does not mean our portfolio should. We must have the conviction to tell ourselves, this method has worked for me and let me stick to it as long as I am happy or does the job (get enough money for my goals). The problem occurs when we start defending our choices in public with no data support.

So before getting into all this, decide on how you want to build your equity portfolio. The fund choices can come later

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About the Author M Pattabiraman author of freefincal.comM. Pattabiraman(PhD) is the author and owner of freefincal.com.  He is an associate professor at the Indian Institute of Technology, Madras since Aug 2006. Pattu” as he is popularly known, 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 topics of money management.  He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. Pattu publishes unbiased, promotion-free research, analysis and holistic money management advice. Freefincal serves more than one million readers a year (2.5 million page views) with numbers based analysis on topical issues and has more than a 100 free calculators on different aspects of insurance and investment analysis. He conducts free money management sessions for corporates  and associations(see details below). Previous engagements include World Bank, RBI, BHEL, Asian Paints, TamilNadu Investors Association etc. Contact information: freefincal {at} Gmail {dot} com (sponsored posts or paid collaborations will not be entertained)
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6 Comments

  1. Hi Pattu,
    does below also similar to HDFC Midcap Opportunities + Nifty Next 50 (or Nifty 50)
    Franklin India Prima (midcap) +Nifty Next 50 (or Nifty 50)

    what about something like
    Parag Parikh Long Term Equity Fund(40%) + HDFC Midcap/ Franklin Prima (30%) +Nifty Next 50(30%)

  2. Thanks a lot. I am already doing this but with a different active fund. I only have 3 equity funds for all my goals 1. Nifty 50, 2.Nifty Next 50 and 3. Mirae Asset Hybrid Equity. For debt portion I only have vpf, pf & ppf. My asset allocation is 50:50 for all goals.

  3. Sir, with most of the fund recommendations sitting in HDFC, ICICI, SBI, Franklin India, I am thinking why should we not compare funds from only these top tier AMCs when faring against Index funds (from same category ofcourse), instead of adding all funds from all AMCs and saying 95% of funds did not beat the index.

    Is my thinking valid, or do you see some any problem?

    Thanks in advance.

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