Difference Between Nifty 50 and Nifty Next 50 Index

A stock market index measures the changes taking place in the market. It consists of a set of stocks representing the whole market and tracks changes in these stocks. Hence the value of the index depends on the value of underlying stocks. If the underlying stocks go up, the value of the index also increases and decreases when the value of underlying stocks goes down. One of the popular indices in the market is the Nifty 50. Read to know more about nifty 50 and nifty next 50 indexes. Let’s see Nifty 50 vs Nifty Next 50.

What is Nifty 50?

Nifty 50 is a popular stock market index of the National Stocks Exchange (NSE). Its name is derived from the national stock exchange and fifty and has the top performing fifty stocks in the market based on their free float market capitalization. The stocks in the index are from 14 different sectors. They are also the largest and most liquid companies in the index.

The stocks on the nifty 50 are selected based on free-float market capitalization, which is the current market value of all the actively trading shares. Hence shares with high market capitalization have high weightage in the index compared to stocks with low market capitalization.

Eligibility criteria for Nifty 50 stocks

There is a set criterion for selecting stocks for Nifty 50. The stocks in the index are rebalanced every six months based on the criteria. Following are the eligibility criteria for a stock to be included in the Nifty 50 index.

• The company should be registered with the NSE.
• Its shares must be liquid. The liquidity is measured by impact cost. It is the price at which the security trades in relation to the index’s weight. The impact cost should be less than or equal to 0.5% for a six-month period.
• In the past six months, the trading frequency must be 100%.
• The company’s market capitalization should be 1.5 times the smallest company on the index.

How is Nifty 50 computed?

Nifty 50 is calculated through the free float market capitalization method. The formula for the calculation of Nifty 50 is given below.

Value of Index = Current market value / (Base value index * Base Market Capital)

The base year for Nifty 50 is 1995, the base market capitalization is Rs 2.06 trillion, and the base value is 1000.

List of Nifty 50 stocks

Source: NSE

What is Nifty next 50?

Nifty next 50 is an index of the 50 companies from the Nifty 100, after excluding the Nifty 50 companies. These stocks are potential candidates that have a chance to be included in the Nifty 50 index in the future. They are also the next largest companies in terms of free-float market capitalization to be trading on the exchange (NSE) after the Nifty 50 companies.

Nifty next 50 is the least concentrated large-cap index as the 50 stocks are more evenly distributed when compared to Nifty 50. The stocks of this index are from 16 sectors, such as auto components, financial services, chemicals, and pharmaceuticals.

Eligibility criteria for Nifty next 50 stocks

Just like the Nifty 50, the Nifty next 50 indexes are also rebalanced every six months. There is a set criterion for a stock to qualify for the Nifty next 50, and the basis for which stocks are selected for the index are mentioned below.

• The stocks are the rest of the fifty stocks in the Nifty 100 index, after excluding Nifty 50 stocks.
• Cumulate weights of index constituents that are not available for futures and options trading are capped at 15%.
• The weightage of non-futures and options stocks is capped at 4.5%.

How is Nifty next 50 computed?

Nifty next 50 is computed based on the free float market capitalization method. The level of the index reflects the free float market capitalization of all stocks in relation to the base market capitalization.

Value of Index = Current market value / (Base value index * Base Market Capital)

The base date is November 04, 1996, and the base value is 1000.

List of Nifty’s Next 50 stocks

Source: NSE

How to invest in Nifty and Nifty next 50?

The best way to invest in Nifty and Nifty Next 50 is through index funds and exchange-traded funds (ETFs) that track these indexes. By investing in index funds, you can earn market returns. However, ensure the tracking error is low before choosing an index fund.

Tracking error is the difference between index returns and fund returns. Funds with low tracking errors can replicate the index with fewer errors and make almost the same returns as the index. 

Difference between Nifty 50 and Nifty next 50

Nifty 50 and Nifty next 50 are large-cap indices of the National Stock Exchange. That’s the only similarity they have in common. The following are the major differences between the two indices.

Meaning

 Nifty 50 represents the top 50 companies based on free-float market capitalization in the large-cap universe. In contrast, Nifty next 50 represents the next 50 companies based on free-float market capitalization. These companies have a high potential to become the next Nifty 50 stocks.

Diversification

Nifty 50, as the name suggests, has 50 stocks from different industries. But the index is very concentrated when compared to Nifty next 50. As of November 30, 2022, Nifty 50 has around 14 sectors, and some sectors have higher weightage when compared to others. On the other hand, Nifty next 50 has 16 sectors in its portfolio. Moreover, the top 10 stocks of Nifty 50 take up 58.15% of the index against 31.93% of Nifty next 50. This shows that Nifty next 50 is more diversified, and Nifty 50, on the other hand, relies on a few stocks and sectors for its performance.

Performance and risk

The five-year return of Nifty 50 is 12.9%, and for Nifty next 50 is 7.8%. This clearly shows that the Nifty 50 is leading in terms of performance as it has a higher five-year return. With respect to risk, both have a five-year standard deviation of 19.4 as of November 30, 2022. This shows that for a similar risk, Nifty 50 is giving higher returns than Nifty next 50 for a duration of five years.

However, if you consider the returns since inception, Nifty 50 has given an 11.4% return with a standard deviation of 23.4. Nifty next 50, on the other hand, has given a 15.6% return with a standard deviation of 26.3. Nifty next 50 has midcap companies that are growing to become the next top 50 companies in India, hence having a higher standard deviation. In the long term, Nifty next 50 proves to be a better investment than Nifty 50.

Nifty 50 vs Nifty Next 50: Which is better?

Both Nifty 50 and Nifty next 50 are considered ideal for large-cap allocation in a portfolio. Nifty 50 has a more concentrated bet on large players giving high returns in bullish markets. Nifty next 50 includes more emerging bluechips with good growth potential and can help in steady compounding in the long term.

Investors preferring the SIP route can consider investing in index funds, whereas investors looking to invest on a real-time basis can consider ETFs. However, before investing in any fund, it is important that you check your goals, investment horizon, and risk tolerance levels. These and other important quantitative factors, such as performance and tracking error, must be checked before investing in ETFs and index funds.

Frequently Asked Questions

How do I choose a Nifty 50 Index Fund?

The best index fund to invest in is the one that aligns with your goals and risk tolerance levels. Moreover, it is also the fund that has less tracking errors. Hence when investing in index funds, apart from looking for the performance, also look for the tracking error, and ensure that it aligns with your goals.

Is NIFTY 50 good for the long term?

Markets have always gone up in the long term. Nifty 50 has given a return of 11.4% per annum since its inception in 1996. In the last five years, it has given 12.9%. Hence investing for the long term in Nifty 50 will help accumulate wealth. 

Is NIFTY next 50 A good investment?

Nifty next 50 represents the emerging bluechip stocks that can become the Nifty 50 stocks in the future. Investing in them for the long term will help fulfill your financial goals. You can invest in Nifty next 50 either directly by investing in individual stocks or through an index fund.

Which is the best index fund for NIFTY next 50?

What is best for one investor might not be the best for others. The best index fund for Nifty next 50 is the one that aligns well with your goals and risk tolerance levels. Also, check for the fund’s performance, tracking error, and risk levels. However, if you invest for the long term, you can reduce the risk of investing in equity.

Is Nifty 50 a mutual fund or an index fund?

Nifty 50 is a market index and represents large-cap stocks. It contains the top 50 stocks as per free-float market capitalization that are listed on NSE. It is neither a mutual fund nor an index fund. However, it is a benchmark for several funds. If you want to invest in Nifty 50, you can do so through index funds or ETFs.

Do nifty 50 companies change every day?

No, the Nifty 50 index is rebalanced semi-annually. Hence the companies in Nifty 50 change every six months based on predetermined criteria.

When do nifty 50 companies change?

The companies in Nifty 50 change every six months in June and December. If the companies in the index do not meet the criteria, then they will be replaced by other companies that fit the criteria.

Who decides nifty 50 companies?

Nifty 50 is owned and managed by NSE Indices Limited. The company has come up with criteria based on which it chooses stocks for the index.

Who coined the term nifty 50?

Nifty was formed by combining National Stock Exchange (NSE) and fifty, and the company NSE Indices Limited coined it.