You must have come across news headlines mentioning NIFTY 50 several times. Newspapers and TV channels flash NIFTY 50 charts almost every day, and investment experts continuously use the term ‘NIFTY 50’ while analyzing what will happen in the stock market. But what is this NIFTY 50 you keep hearing about all the time?

In this video, we will explain everything you need to know about NIFTY 50 and how you can invest in it to build considerable wealth in the long run.

Topics Covered:
00:00 Introduction
00:47 WHAT IS THE NIFTY 50?
02:44 THE NIFTY: THEN & NOW
04:54 HOW ARE NIFTY 50 STOCKS SELECTED?
08:53 PERFORMANCE OF NIFTY 50
12:56 HOW TO INVEST IN NIFTY 50?


👉 WHAT IS THE NIFTY 50?
The NIFTY 50 represents the weighted average of India’s top 50 companies that are listed on the National Stock Exchange. So the NIFTY 50 is a market index and like any index, it represents a portfolio of investment holdings that happen to the bluest of the bluechip companies. After all, we are talking about companies like Reliance Industries, the State Bank of India, Maruti Suzuki, TCS, Asian Paints, and 45 other industry-leading companies

In fact, at the time of recording this video. these 50 companies together had a total market capitalization of over 1.25 crore crores which represents between 55 to 60% of the market capitalization of all companies listed on the National Stock Exchange

👉 THE NIFTY: THEN & NOW
The NIFTY was introduced by the National Stock Exchange in the year 1996 which makes it a good 25 years old. Only 13 companies have celebrated 25 years of existence in the NIFTY. A good 75% of them have either merged with others or have simply lost relevance over time. In fact, comparing the 1996 table with the 2021 table shows us how India has moved from being a manufacturing economy to a service one over these last 25 years. The point is that companies that represent the NIFTY do change and the index has seen almost 100 changes in its constituents over the last two-and-a-half decades

👉 HOW ARE NIFTY 50 STOCKS SELECTED?
The NIFTY has a very well-defined and transparent methodology of selecting the constituent companies. It has 4 steps.
1. The universe of stocks - a company should be compulsorily listed on the National Stock Exchange for it to be a part of the NIFTY. The company should also be available for trading in NSE’s Futures & Options segment
2. Basic construct - the selected companies have to be in the top 50 companies in terms of their free-float market capitalization
3. Liquidity - Only those companies are considered whose trading volumes are always high
4. Semi-annual rebalancing exercise - This determines which stocks stay within the NIFT, which new ones come in and which of the existing companies move out of the NIFTY

👉 PERFORMANCE OF NIFTY 50
The NIFTY 50 started its journey from a base value of 1000 points and today, it is on the verge of touching 16,000 points. That’s a CAGR of 11.7% over these last 25 years which is a lot higher than other asset classes like gold and real estate which have delivered between 8 and 9 percent during the same time period. A 25-year old SIP on the NIFTY motored along very well through these peaks and troughs and 30 lakh investment would have delivered a wealth corpus of 2.07 crores at a CAGR of 12.8%

👉 HOW TO INVEST IN NIFTY 50?
There are two ways to invest in the NIFTY
One - Buy stocks in the same percentage of their composition in the NIFTY
Two - invest in an index mutual fund that tracks the NIFTY 50

The first approach is not really made for the average retail investor. It is expensive, it is hectic and it’s pretty complicated. This is the reason why most investors prefer to use ETFs or index funds to invest in the NIFTY 50.

More recently consumer interest in investing via index funds has grown in India and there are many reasons for that

1. You can start your investment on the ETMONEY app at just 500 rupees a month .. and even 100 rupees with some schemes.
2. These funds have a SIP facility.
3. Index funds don’t need active management which keeps the expense ratio really low
4. Index funds follow a well-defined system which means there are no human biases with stock selection and one doesn’t need to worry about specifics like rebalancing, etc.

Resources:
Tracking Error video    • Tracking Error in Index Funds - Defin...  

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