Last Updated on September 3, 2024 at 8:31 am
Nippon India Nifty 500 Equal Weight Index Fund is an open-ended scheme tracking the Nifty 500 Equal Weight Index. The fund is currently in its NFO period. We analyse the performance of the underlying index and discuss if it makes sense to consider this fund for investment.
According to the AMC’s scheme presentation, “Large caps (Nifty 100) have a major influence at ~73% weight in the Nifty 500 Index, while Small caps (Nifty Smallcap
250) represents a mere ~10% weight. While Large caps (Nifty 100) represent ~20% and Small caps represent ~50% weight in the Nifty 500 Equal Weight Index.” That should give you an idea of what to expect from the fund!
Nifty 500 Equal Weight Index vs Nifty 50
The Nifty 500 Equal Weight Index underperforms Nifty 50 frequently
Nifty 500 Equal Weight Index vs Nifty Next 50
The Nifty 500 Equal Weight Index has consistently underperformed the Nifty Next 50. This is enough to appreciate that there is nothing special about Nippon India Nifty 500 Equal Weight Index Fund, and one can give it a miss.
Five-year rolling returns
5-year rolling returns of Nifty 500 Equal Weight Index vs Nifty Next 50 vs Nifty 50 from April 2005 to August 2024 are shown below. The underperformance in actual index funds is expected to be lower, considering higher tracking errors and possibly higher fees.
Ten-year rolling returns
The 10-year rolling returns of Nifty 500, the Equal Weight Index vs Nifty Next 50, and Nifty 50 from April 2005 to August 2024 are shown below. The equity weight index periodically underperforms the Nifty 50 and rarely outperforms the Nifty Next 50.
According to fund house (source scheme presentation linked above), “Diversification:
Enhances the overall performance of a portfolio by giving equal importance to each constituent, promoting diversification and reducing concentration risk” is a specific reason for choosing Nippon India Nifty 500 Equal Weight Index Fund.
However, the above charts paint a different picture. This equal-weight index is too small and mid cap-heavy for its good. While we have consistently advocated against small cap funds, those who love small cap stocks are relatively better off with exposure to an active small cap fund than this fund. In summary, we find no compelling reason to invest in Nippon India Nifty 500 Equal Weight Index Fund.
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