We compare the rolling returns of Nifty 50, Nifty Next 50, Nifty Midcap 150 and Nifty Smallcap 250. We publish this comparison from time to time. This is the April 2024 edition.
Returns for a financial instrument that fluctuates can be calculated in two ways:
Point-to-point returns: The effective annual compounded growth rate (CAGR) is calculated between two dates. You can calculate CAGR for your mutual fund and compare it with its benchmark from Jan. 1st to Dec. 31st, or you can calculate CAGR for the year to date (last 365 days). So, the start and end dates can be convenient for us.
What we need to know before choosing a mutual fund, or more importantly before deciding to quit a mutual fund scheme, is how consistent the fund’s performance is when compared with its benchmark. To do this, we need to use Rolling returns.
Calculating Rolling returns: To calculate rolling returns, we must again decide on start and end dates. Let us say this is a 10-month period. We then calculate the percentage change in the fund’s NAV from day 1 (start date) to day 7 (weekly return or IRR). We then calculate the weekly return from day 2 to day 8, day 3 to day 9, and so on until we reach the last date. We repeat this exercise for the benchmark as well.
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! 🔥
If all the dates in our NAV and index history are identical, we could determine how many weeks the fund has outperformed its benchmark. If the fund has beaten its benchmark 75% of all available rolling returns, it could be rated high! This is the basis of our monthly equity mutual fund performance consistency screeners. Those who wish to generate graphs like the ones shown below can use the mutual fund analysis tool that is part of the freefincal investor circle.
Ten-year rolling returns
Over ten years, the Nifty Next 50 has just about managed to keep its head above Nifty 50. From time to time, the outperformance vanishes and then increases.
The recent surge in mid cap indices is more apparent in the above graph. This suggests that Nifty Next 50 has become less volatile than the mid cap index. Let us see how things pan out in future. Do not expect the midcap outperformance to last!
The surge in small cap returns is again apparent in the above graph. And again, it will not last!
The small and mid cap indices are compared below with the Nifty 50.
We recently showed that most actively managed small cap indices cannot beat Nifty Midcap 150. See Active Mutual Funds Outperformance Consistency Report (March 2024). Readers can now perhaps appreciate why we insist on benchmarking active small cap funds with midcap 150 and not small cap 250: Why are you comparing Small Cap Mutual Funds with a Mid Cap Index?!
So, if I am looking for a companion to the Nifty 50 in my portfolio (not necessary IMO), I can safely eliminate all active funds (large, mid, small, focused, flexicap, etc) – see the above report for details. I can also eliminate small cap index funds.
So, should I choose Nifty Midcap 150 index funds or Nifty Next 50 index funds? As we saw above, the Micap index has only recently outperformed the Nifty Next 50 (which has recently recovered a bit).
Will this trend continue? No one can say. However, we can expect the margin of outperformance to come down in the future.
Has Nifty Next 50 become increasingly large-capish due to higher market participation? (See our earlier report: Warning! Nifty Next 50 is NOT a large cap index!). Does this mean the reward for holding Nifty Next 50 (considering the risk taken) would be lower in the future? Again, no one can say.
Perhaps it is reasonable to assume that the Nifty Next 50 will be less risky and rewarding than the Nifty Midcap 150 in future. Perhaps its risk premium compared to Nifty 50 may also be lower.
Does this mean the midcap index is a better choice? Not quite. During a crisis, the mid cap index would be quite volatile with huge drawdowns (fall from a maximum), and how efficiently fund managers could track the index is unknown as liquidity can be a concern due to large impact costs.
Therefore, we recommend the following:
- Investors stick to a simple Nify 50 or Sensex index fund. Nothing more is needed.
- If there is a sense of FOMO, then a small exposure of Nifty Next 50 is sufficient. This can be frustrating to hold from time to time, but that is also true of the mid cap index.
- See Handpicked List of Mutual Funds (PlumbLine) for our fund recommendations.
🔥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)