We compare the rolling returns of Nifty 50, Nifty Next 50, Nifty Midcap 150 and Nifty Smallcap 250. We publish this comparison periodically. This is the August 2026 edition.
Returns for a financial instrument that fluctuates can be calculated in two ways:
Point-to-point returns: Calculate the effective annual compounded growth rate (CAGR) 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.
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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 want to generate graphs like the ones shown below can use the mutual fund analysis tool in the freefincal investor circle.
Caution: Many people use rolling return charts incorrectly. For example, averaging rolling returns makes no sense. A rolling returns chart primarily shows risk through the spread of returns and cyclical performance. Comparing two time series (index vs index or index vs fund, etc.) reveals outperformance or underperformance. See more: How to interpret rolling return charts?
Nifty 50 vs Nifty Next 50
The Nifty Next 50 has just about managed to keep its head above the Nifty 50. From time to time, the outperformance vanishes and then increases. If you don’t appreciate this and are willing to be patient, Nifty Next 50 (or, for that matter, equity) is not for you!
Nifty Midcap 150 vs Nifty Next 50
The mid cap index prior to this decade was similar to the Nifty Next 50. It began to pull away north after the COVID crash, lost much of its outperformance about a year ago, and has since recovered.
The big question is: has the risk-reward profile of the Nifty Next 50 reduced due to higher market participation? Has it become more large-cap-like, though not quite in the same league as Nifty 50?
While definitive answers aren’t possible, it’s safer to assume the Midcap 150 may offer a higher risk-plus-potential-reward profile going forward than the Nifty Next 50.
The only thing stopping me from recommending a Midcap index fund is that it hasn’t seen an abrupt crash so far when its liquidity suddenly evaporates. How the fund manager would cope then, especially when AUM swells, remains to be seen. So as of now, I am going to stick to my Nifty Next 50 index fund recommendation for those who want a “bit more” than the Nifty 50.
That said, the Nifty 500 is a much safer choice as a one-fund portfolio for those who recognise that it is a large-cap-oriented index and that any outperformance vs the Nifty 50 may not be temporary. See: Nifty 50 or Nifty 500, which index fund should I choose?
Nifty Midcap 150 vs Nifty Smallcap 150 vs Nifty Next 50
If we include the small cap index in the mix, we see that its outperformance wrt the Nifty Next 50 did not last (if you take into account tracking errors and management fees, the gap that you currently would be lower).
The small cap index does not outperform the mid cap index, as we have pointed out several times before. We have also shown 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 the Midcap 150 and not the small cap 250: Why are you comparing Small Cap Mutual Funds with a Mid Cap Index?!
Therefore, we recommend the following:
- If you want a one-fund equity portfolio, a Nifty 500 will get the job done if you insist on having exposure to all market caps (except micro).
- If you can keep FOMO at bay, a Nifty 50 or Sensex index fund would suffice.
- If you aim for (potential) higher returns, with, of course, higher risk, a Nifty 50 + Next 50 combo will work. The exposure to the Next 50 fund will depend on your risk appreciation (not appetite).
- See Handpicked List of Mutual Funds (PlumbLine) for our fund recommendations.
Are the risk-reward profiles of all these indices changing as market participation increases? It is quite possible. But we cannot be too sure about the direction. Need to keep checking. Watch this space.
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