Last Updated on December 8, 2023 at 9:01 pm
By now it should be no surprise to freefincal regulars that the Nifty Next 50 (NN50) has a fantastic (though volatile) track record and most actively managed mutual funds struggle to beat it. In fact, no active fund has NN50 as its benchmark. So this naturally draws the question, what is the best way to invest in the Nifty Next 50? Should I use an index fund or an ETF? Which is better? Let us find out.
First, what is NN50? If you arrange (in descending order) the stocks that trade at the NSE as per their free float market capitalization (that is the no of stock available for trading x current price) then the Nifty 50 has the top 50 stocks, NIfty next 50 has the next 50 stocks(!). Nifty 100 = Nifty 50 +Nifty next 50 and so. If you want an introduction Watch my talk on index investing: Can we get higher returns with lower risk?
Second, if you are hearing about the NN50 for the first time, do take some time to understand its speciality by reading these posts:(1) Evaluating the Nifty Next 50 as an Index Fund (2) Nifty Next 50: The Benchmark Index That No Mutual Fund Would Touch?! (3) Warning! Nifty Next 50 is NOT a large-cap index! (4) Are Nifty Smart Beta (strategic) Indices better than the Nifty Next 50? (5) Why we badly need a Midcap and Smallcap Index Fund – Performance Comparison with Nifty Midcap 100 & Nifty Next 50
Third, please recognise that the only the reason NN50 has performed well and has been so volatile is that its bottom 10 stocks are pretty much midcaps. So NN50 is large and midcap index fund. As the Indian stock market attains greater depths, that is more robust trading volumes, we should expect the NN50 to become more large-capish and the high returns seen in the past could well disappear.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
Fourth, recognise that in the Nifty 50 and Nifty next 50, the stock with higher free-float market cap has the higher weight. So about 50% of the index will have about 7-8 stocks! This is a bit too much concentration! Instead of this, the NIfty 100 equal weight is an index that assigns equal exposure to all stocks. This will lower risk and often enhance rewards. The Nifty 100EW is a better option than the NN50 if we go by past performance – lower risk and similar reward. As on date, there are two index funds – one from Sundaram and one from Principal that track the NIfty 100 Equal-weight and both are now part of My Handpicked Mutual Funds September 2018 (PlumbLine)
Fifth, at the rate at which I moving towards index investing, soon there will be no more need for you to read freefincal 🙂
What are the current options to invest in Nifty Next 50 Index?
As on Sep 6th 2018, these are the list of index funds and ETFs that track the NN50.
- IDBI Nifty Junior Index Fund – Direct Plan
- Reliance ETF Junior BeES
- ICICI Prudential Nifty Next 50 Index Fund – Direct Plan
- ICICI Prudential Nifty Next 50 ETF
- UTI Nifty Next 50 Exchange Traded Fund
- UTI Nifty Next 50 Index Fund – Direct Plan
- SBI ETF Nifty Next 50 Fund
- SBI ETF Sensex Next 50
So out of these 8, let us quickly eliminate options.
SBI ETF Sensex Next 50 (NFO opened Sep 5th 2018). Verdict: Too soon, avoid
ICICI Prudential Nifty Next 50 ETF (Just started trading a few days ago) Verdict: Too soon, avoid
IDBI Nifty Junior Index Fund-Direct Plan. AUM as on 31sy July 2018 55.96 Crores. The expense ratio for the direct plan: 0.56%. Verdict aum is too low and the expense ratio is too high. Avoid. Source: fund factsheet
SBI ETF Nifty Next 50 Fund AUM is about 19 Crores (as per VR, the fund house factsheet link does not work!) and the expense ratio is 0.23%. Not let us look at how much the Price of the ETF unit varies from its NAV.
I think that is a but much, especially those spikes. It does, however, hover about 0% and that is good. Price NAV differences are okay as long as they move on either side of 0%. Tbis means there is a good supply-demand resetting aided by authorized participants. As pointed out in Interested in ETFs? Here is how you can select ETFs by checking how easy it is buy/sell them – a low AUM ETF is by itself not a problem as long as the price-nav difference is not too high.
If we look at the recent price nav difference where each vertical bin is a week in size, notice that positive or negative differences do not last for more than a week or so. In this regard, this ETF is “okay”, but we can do better?. Verdict: OK, neutral
UTI Nifty Next 50 Exchange Traded Fund
Expense ration is .0222% and AUM as on July 31st 2018 is 52.43 Crores. Source: fund house If we look at the price-nav difference, there are prolonged periods when the price is either above or below NAV.Each vertical bin is a week. That is not a good sign. Verdict: Avoid
ICICI Prudential Nifty Next 50 Index Fund-Direct Plan vs Reliance ETF Junior BeES
So let us now compare the well-established choices for NN50 tracking. By the way, the NN50 was known as NIfty Junior (Nifty = nifty senior). The Junior bees ETF is 15 years old and the ICICI index fund is 8 years old. We shall however only compare returns from Jan 2013 as we shall only consider the direct plan.
There is one important difference between an index fund and an ETF. If you look at the scheme document of Junior Bees,
The Scheme, in general, will hold all the Securities that comprise the underlying index in the same proportion as the index. The income received by way of Dividend shall be used for recurring expenses and Redemption requirements or shall be accumulated and invested as per the investment objective of the Scheme. There is a risk of higher Tracking Error due to the income received by way of Dividend till it is reinvested. Expectation is that, over a period of time, the Tracking Error of the Scheme relative to the performance of the underlying index will be relatively low.
The delay in reinvestment can be as much as one quarter from what I understand. Also according to Indiainfoline, the last dividend payout was on Nov 3rd 2014. The NAV used will ex-dividend. That is the divided will not be factored in
First, we compare the ICICI index fund NAV with the Reliance Junior Bees NAV (excluding the one dividend mentioned above). Technically this is wrong as we ETF returns should be calculated with its price as that is what we use for buying and selling. Of course to this the dividend also should be treated as reinvested (and this is not done)
Three years: Index fund NAV vs ETF NAV
Four years: Index fund NAV vs ETF NAV
Five years: Index fund NAV vs ETF NAV
So now let us use the ETF price. Notice now that the ETF even without taking into account the dividend fares much better.
Three years: Index fund NAV vs ETF Price
Four years: Index fund NAV vs ETF Price
Five years: Index fund NAV vs ETF Price
Reliance Junior Bees Verdict: Good choice for those who already have demat accounts (note that demat acct charges and brokerage have been excluded) and know how to place limit orders and can track and wait for nav-price to hit desirable levels
ICICI Nifty Next 50 Index fund Direct plan Verdict: If you compare with the ETF, the fund with even 0.44% expense ratio does reasonably well and is a good choice. The AUM as on 31st July is 250.36 crores.
UTI Nifty Next 50 Index Fund-Direct Plan AUM as on 31sy July 2018 227.65 Crores. The expense ratio for the direct plan: 0.27%. Verdict aum is pretty high for an index fund launched only in June! The expense ratio is pretty low. INVEST! Source: fund factsheet A big thank you to a reader who calls himself “Neo” for pointing this out
So these are clearly the best choices for tracking Nifty Next 50 index fund. Existing investos in either Junior Bees or ICICI NN50 index fund can continue happily. New investors could consider UTI index fund. If the UTI fund keeps its ER low, it has the potential to be the best choice among these.
Considering how frequently AMCs are churning up with index and ETFs, the landscape will change fast. I am now going to add both the UTI index fund and Junior Beest to My Handpicked Mutual Funds September 2018 (PlumbLine) Thank you “Neo”.
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 7000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 2,500 investors and advisors use this!
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.
- 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 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
About The Author
Dr 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!
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
- 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 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
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 a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
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)