I am 20 years old; should I choose Nifty Next 50 or Nifty Midcap 150 index fund?

A subscriber to our YouTube channel asks, “I am 20 years old. I want to start investing. Which can I choose, Nifty Next 50 or Nifty Midcap 150 index fund?”

For older people like me, it is lovely that you want to start investing so early (I appreciate that it is now quite common for your peers to do so). That said, there is no need for you to rush to invest.

I don’t think you should invest in either the Nifty Next 50 or the Nifty Midcap 150 index. At the peak of a bull market, these indices look pretty favourable, but they can go years and years without giving any returns. All you need is a NIfty or Senses index fund. At best, you can invest in a Nifty 100 index fund if you have severe FOMO about not “expanding” your equity portfolio.

Here are some relevant articles on Nifty Next 50:

• Nifty Next 50 outshines Nifty 50 by 41% – Time to buy?
• Lessons from the Revival of Nifty Next 50
• Nifty vs Nifty Next 50 vs Nifty Midcap 150 vs Nifty Smallcap 250: Return Comparison April 2024
• Nifty vs Nifty Next 50 vs Nifty Midcap 150 vs Nifty Smallcap 250

Here are some steps to consider for 20-somethings who have just started earning or are about to do so.

1. Use your first paycheck and make your parents and the rest of the family happy.
2. Use your second paycheck to get something for yourself (money will be spent after all!). Just make sure these are not high-end recurring expenses.
3. From your first paycheck, 20-30% of your take-home expenses will be charged to another bank account or a liquid fund. This is your emergency stash. You can reduce this allocation after, say, 18-24 months. Increase it again suitably if you withdraw due to an emergency.
4. Get Term life insurance (15-20 times annual income)
5. Get health insurance for parents (if not present). Get a separate health cover for yourself.
6. Plan for a short-term goal: Maybe a bike, a DSLR, or a holiday? Allocate some money from your salary each – open an RD for 3 months or six months for these. Life is about finding the right balance. When it comes to money, the balance is made up of needs, wants, savings, and investments. It is hard, but we have to try!
7. When all this is done, determine the sum of your investible surplus + mandatory retirement deduction.
   • Investment surplus = income – expenses – EMI
   • mandatory retirement deduction = amount deducted from salary for EPF or NPS, etc. (if you have this arrangement with your employer)
8. The total investment made = investible surplus + mandatory retirement deduction. Ensure 50% of total investment is into equity and 50% is in fixed income (EPF or NPS{without equity}, PPF if necessary
9. For the equity part, start an SIP or invest each month manually in an NIfty index fund direct plan or growth option. If you want to invest in stocks, do so with an extra amount. Do not touch this amount if you are investing Rs. 5000 in fixed income and Rs. 5000 in the Nifty 50 index fund. Find a space in your salary to accommodate stock investing.
10. If you have severe FOMO about not investing in Nifty Next 50, replace the Nifty 50 index fund with a Nifty 100 Index fund. You don’t need any more funds (at least not until your net worth grows).
11. Increase your investments by at least 10% annually – this is the key to wealth.
12. Focus on enhancing your skills and income. Think long term for your income
13. There are other steps, such as portfolio rebalancing, risk management, etc. But those can wait a couple of years. You have the most essential wealth of all – time. Do not waste an instant of it.

I wish you all the best!