Nifty 500 Equal Weight Index Vs Nifty 500 Index


Not too long ago NSE launched a brand new Index known as Nifty 500 Equal Weight Index. Is it higher than Nifty 500 Index when it comes to threat and return? Allow us to discover the solutions.

In my earlier article relating to the Nifty 500 Index, I demonstrated the the reason why it isn’t an acceptable index for funding. I counsel you to refer the identical for additional readability “Ought to We Make investments In Nifty 500 Index Fund?“.

Since its current launch, there are at the moment no Index Funds out there to match this Index. Nonetheless, it’s price mentioning that new fund choices on this class might emerge within the close to future. Therefore, I’ve taken the initiative to jot down an article nicely forward of time.

The final consensus is that the equal weight Index is anticipated to scale back threat, as seen within the comparability between the Nifty 50 Index and the Nifty 50 Equal Weight Index. Plainly the Nifty 500 Equal Weight Index might need decrease volatility than the Nifty 500 Index. Nonetheless, the precise outcomes contradict this perception.

What’s the Nifty 500 Equal Weight Index?

The Nifty 500 Equal Weight index represents another weighting technique to its mum or dad index, the Nifty 500. It consists of the identical firms because the Nifty 500, nevertheless, weighed equally. The bottom date for the index is April 01, 2005, and the bottom worth is 1000.
The index is reconstituted on a semi-annual foundation and weights are rebalanced on a quarterly foundation. The index is anticipated to behave as a benchmark for asset managers and a reference index tracked by passive funds within the type of Trade Traded Funds (ETFs), index funds, and structured merchandise.

The Nifty 500 index represents the highest 500 firms chosen primarily based on full market capitalization from the eligible universe. Nifty 500 Index is computed utilizing the free float market capitalization methodology, whereby the extent of the index displays the entire free float market worth of all of the shares within the index relative to a specific base interval.

The Nifty 500 Index was created with a beginning worth on January 1, 1995, and is rebalanced each six months. As of April 30, 2024, the sector allocations are as follows: Monetary Companies at 29%, Oil, Fuel, and Consumable Fuels at 9%, IT at 8.8%, Car and Auto Elements at 7%, and FMCG at 7%.

Let’s study the highest shares within the Nifty 500 index. A notable 58% of those shares are a part of the Nifty 50 index, whereas round 14% come from the Nifty Subsequent 50 Index. Which means that a considerable 72% of the Nifty 500 shares are from Nifty 100. The remaining 28% of shares are from the mid and small-cap sectors.

Nifty 500 Equal Weight Index Vs Nifty 500 Index – Which is one of the best?

The Nifty 500 Equal Weight Index was established on the first of April 2005, subsequently, we have to analyze the information from that date as much as the present date. In my evaluation, I will likely be contemplating the Nifty 500 Equal Weight Index TRI, Nifty 500 TRI, and Nifty 100 TRI for comparability. Therefore, now we have round 4755 day by day knowledge factors to look into and arrive on the determination.

Allow us to start by analyzing the trajectory of those three indices if a person had invested Rs.1,00,000 in every of them on April 1, 2005.

Lump Sum Investment of Rs.1 Lakh in Nifty 100 TRI, Nifty 500 TRI and Nifty 500 Equal Weight TRI

The Nifty 100 Index TRI, Nifty 500 Index TRI, and Nifty 500 Equal Weight Index TRI yielded last values of Rs.15,23,734, Rs.15,22,563, and Rs.16,11,436 respectively for an preliminary funding of Rs.1 lakh. It’s price noting that the outperformance of the Nifty 500 Equal Weight Index can solely be noticed over the previous 2 years, as visualizing its efficiency earlier than that interval is restricted.

Let’s study the drawdown chart. This serves as a transparent indication of the potential lower in your invested worth from its highest level between April 1, 2005, and June 3, 2024.

Drawdown of Nifty 100 TRI, Nifty 500 TRI and Nifty 500 Equal Weight TRI

The decline in Nifty 500 Fairness Weight TRI compared to Nifty 100 TRI and Nifty 500 TRI is considerably bigger. That is primarily attributable to its elevated allocation to Mid and Small Cap Funds.

Allow us to now test the efficiency of all three by evaluating 1 12 months, 3 Yrs, 5 Yrs and 10 Yrs Rolling Returns.

1 Yr Rolling Returns – Nifty 100 TRI Vs Nifty 500 TRI Vs Nifty 500 Equal Weight TRI

1 Yr Rolling Returns Nifty 100 TRI Vs Nifty 500 TRI Vs Nifty 500 Equal Weight TRI

Discover that there is no such thing as a such higher distinction between Nifty 100 TRI and Nifty 500 TRI. Nonetheless, the Nifty 500 Equal Weight TRI is massively risky in nature.

The Nifty 500 Equal Weight Index TRI has proven outpeformed in comparison with the Nifty 100 TRI and Nifty 500 TRI in almost 45% of cases. Conversely, within the remaining 55% of instances, it exhibited underperformance relative to each indices.

3 Yrs Rolling Returns – Nifty 100 TRI Vs Nifty 500 TRI Vs Nifty 500 Equal Weight TRI

3 Yrs Rolling Returns Nifty 100 TRI Vs Nifty 500 TRI Vs Nifty 500 Equal Weight TRI

For 3 years of rolling returns additionally, the outcomes are the identical. You possibly can simply visualize the volatility it poses than Nifty 500 TRI and Nifty 100 TRI.

In case of efficiency consistency, Nifty 500 Fairness Weight TRI outperformed the Nifty 100 TRI for 54% of the time and 55% of the time with respect to Nifty 500 TRI.

5 Yrs Rolling Returns – Nifty 100 TRI Vs Nifty 500 TRI Vs Nifty 500 Equal Weight TRI

5 Yrs Rolling Returns Nifty 100 TRI Vs Nifty 500 TRI Vs Nifty 500 Equal Weight TRI

As soon as extra, the volatility of the Nifty 500 Equal Weight Index in comparison with the Nifty 100 and Nifty 500 has been noticed. Moreover, upon analyzing the consistency of outperformance, it was discovered that the Nifty 500 Equal Weight Index outperformed the Nifty 100 TRI roughly 39% of the time, and compared to the Nifty 500 TRI, it was 48%. The notable lower in outperformance of the Nifty 500 Equal Weight Index in opposition to the Nifty 100 Index means that this Index is probably not a worthwhile consideration.

10 Yrs Rolling Returns – Nifty 100 TRI Vs Nifty 500 TRI Vs Nifty 500 Equal Weight TRI

10 Yrs Rolling Returns Nifty 100 TRI Vs Nifty 500 TRI Vs Nifty 500 Equal Weight TRI

Right here, though the consistency rating elevated to for round 47% in comparison with Nifty 100 TRI and Nifty 500 TRI, you observed the volatility it poses to us.

Based mostly on the evaluation of the previous 19 years, it’s evident that the Nifty 500 Equal Weight Index presents the next degree of diversification in comparison with the concentrated threat of the Nifty 500. Nonetheless, you will need to notice that this index is related to important volatility attributable to its publicity to mid and small-cap shares. Moreover, the efficiency of the Nifty 500 Equal Weight Index will not be constant to that of the Nifty 100 and Nifty 500. Subsequently, it’s advisable to chorus from investing within the Nifty 500 Equal Weight Index and as an alternative concentrate on the Nifty 100 Index.

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