Nifty 100 is good, but there might be a smarter option

“I want to invest passively in large-cap stocks. Should I just go with a Nifty 100 index fund and keep it simple? Or is it better to split between Nifty 50 and Nifty Next 50?”

At first glance, you’d consider the Nifty 100 because it covers the top 100 companies in the country in a single fund. Simple, broad and efficient.

So, why own two funds (one covering Nifty 50 and the other tracking Nifty Next 50), right?

Here’s the twist, though: While the Nifty 100 includes both Nifty 50 and Nifty Next 50 stocks, it’s heavily skewed toward the top 50. Over the past decade, the top 50 have consistently called the shots — their weight in the Nifty 100 has hovered between 82 and 88 per cent, averaging a hefty 85 per cent. That means you may not be getting as much exposure to the next set of rising stars as you think.

So, imagine you invested Rs 10,000 in a Nifty 100 fund. Nearly Rs 8,500 would go into the top 50 companies, and only Rs 1,500 trickles down to the next 50. That’s not ideal, especially when the Next 50 have historically pulled more than their weight in returns.

Given the subtle difference, let’s look at which option is better?

Nifty 100 vs Nifty 50 + Nifty Next 50

Let’s bring in the numbers.

We looked at five-year rolling returns (on a daily basis) over the last 15 years. A portfolio with a 50-50 split between Nifty 50 TRI and Nifty Next 50 TRI beat the Nifty 100 TRI around 70 per cent of the time, with an average outperformance of 0.8 percentage points. That’s not huge, but over time, it adds up.

Now, let’s see how it plays out with a real-world SIP example. For this, we assumed a monthly SIP of Rs 10,000 starting in June 2005, with a 10 per cent annual step-up, for both scenarios — a 50-50 split between Nifty 50 and Nifty Next 50, and Nifty 100 — to compare the outcomes. The table below summarises the results.

Reason for this outperformance

The difference in returns—and the resulting corpus—boils down to this: The companies ranked 51 to 100 (Nifty Next 50) have quietly outperformed their bigger cousins in the Nifty 50. Over the past 15 years, the Nifty Next 50 TRI delivered an average five-year rolling return of 14.6 per cent, compared to 12.3 per cent for the Nifty 50 TRI.

However, in the Nifty 100 index, these high performers get just about 15 per cent of the weightage. A 50-50 split, on the other hand, gives them equal billing, and that extra exposure to better-performing stocks is what helped the split portfolio pull ahead.

Why don’t you invest in the Nifty Next 50 only?

If the Next 50 delivers so well, why not go all in and skip the top 50 entirely? Because with higher returns often comes higher volatility.

We looked at eight major market corrections since 2005. Each time, the Nifty 50 TRI dropped 15 per cent or more. The graph below shows how the Nifty Next 50 fared during those same periods, highlighting its steeper falls in most cases.

In five of those eight instances, the Nifty Next 50 fell harder, declining an average of 8 percentage points more than the Nifty 50. In one case, the fall was identical, and in two rare instances, the Nifty Next 50 actually held up better.

Final verdict

If you want simplicity and don’t want to worry about the nitty-gritty, the Nifty 100 is perfectly fine. It’s a single, market-cap-weighted fund that gets the job done.

But if you're looking to get a little more juice from your large-cap allocation, the combo strategy can be worth considering. It brings:

• A track record of better returns, as we've just seen
• The flexibility to back your conviction by giving more weight to the Next 50 segment.

Also read: Nifty Next 50 beats Nifty 50 most times. Time to move there?

This article was originally published on June 03, 2025.