Nifty 50 vs Nifty Next 50: Returns, Risk & Key Differences

If you are exploring Index Funds in India, two benchmarks you are likely to come across are the Nifty 50 and the Nifty Next 50.

Although their names sound similar, the two indices represent different sets of companies and can behave differently across market cycles.

Think of them as two different groups of companies. The Nifty 50 represents 50 of India's leading large companies, while the Nifty Next 50 represents the next 50 companies within the Nifty 100.

Understanding the difference between the Nifty 50 vs Nifty Next 50 can help investors better understand benchmark selection, portfolio exposure, volatility and the characteristics of Index Funds tracking these indices.

In this guide, we explain the difference between Nifty 50 and Nifty Next 50, how the indices are constructed, their risk characteristics, how Index Funds track them, and the factors investors may consider before investing.

Why Compare Nifty 50 and Nifty Next 50?

An Index Fund attempts to replicate the performance of a particular benchmark.

Therefore, understanding the benchmark is an important part of understanding the Index Fund itself.

Two Index Funds can both be passively managed but still provide very different investment exposure if they track different indices.

For example, an Index Fund tracking the Nifty 50 provides exposure to the companies represented by the Nifty 50, whereas a Nifty Next 50 Index Fund provides exposure to a different set of companies represented by the Nifty Next 50.

If you are new to passive investing, start with our guide: What is an Index Fund?

What is the Nifty 50 Index?

The Nifty 50 is a diversified 50-stock index representing important sectors of the Indian economy.

It is one of the most widely followed benchmarks of the Indian equity market and is maintained by NSE Indices Limited.

The Nifty 50 uses a free-float market capitalisation weighted methodology. In simple terms, companies with a higher free-float market value generally have a larger weight in the index.

Because the index contains companies from multiple sectors, it provides diversified exposure to a segment of India's large listed companies.

Want to understand the Nifty 50 in more detail? Read our complete guide: What is the Nifty 50 Index?

What is the Nifty Next 50 Index?

The Nifty Next 50 represents the next 50 companies after the Nifty 50 within the broader Nifty 100 Index.

It therefore represents a separate group of companies within the broader Nifty 100 universe.

Like the Nifty 50, the Nifty Next 50 is calculated using a free-float market capitalisation methodology.

Nifty 50 vs Nifty Next 50: Key Differences

The characteristics of an index can change over time as constituents and weights are periodically reviewed. Historical behaviour should not be interpreted as an indication of future performance.

How Are Nifty 50 and Nifty Next 50 Companies Selected?

NSE Indices follows defined index methodologies for constituent selection, eligibility and periodic review.

Factors considered under the applicable methodology can include areas such as market capitalisation, liquidity and other eligibility requirements.

The important point for investors is that the composition of an index can change over time.

When the underlying index changes, an Index Fund tracking that benchmark generally needs to adjust its portfolio accordingly in order to continue tracking the index.

Nifty 50 vs Nifty Next 50: Market Exposure

One important distinction between the two benchmarks is the set of companies represented by each index.

The Nifty 50 provides exposure to 50 companies included in the index, while the Nifty Next 50 provides exposure to the next 50 companies within the broader Nifty 100.

Therefore, holding funds tracking both indices can result in exposure across different constituents of the Nifty 100 universe.

However, broader exposure does not automatically mean lower risk or higher returns. Equity investments remain subject to market movements.

Nifty 50 vs Nifty Next 50 Returns: What Should Investors Understand?

Searches for Nifty 50 vs Nifty Next 50 returns are common, but historical returns should be interpreted carefully.

There have been market periods in which one index has performed better than the other. Leadership can change as economic conditions, sector performance, company earnings, valuations and market sentiment change.

Therefore, looking only at the index that generated the highest recent return can provide an incomplete picture.

Nifty 50 vs Nifty Next 50: Risk and Volatility

Both benchmarks represent equities. Therefore, Index Funds tracking either benchmark are exposed to equity market risk.

The indices can experience different levels of volatility because their constituents, company weights and sector exposures are different.

Market corrections can affect both indices, and investors should not assume that an Index Fund is low-risk simply because it follows an index.

Tracking Error Matters in Both Index Funds

Choosing a benchmark is only one part of evaluating an Index Fund. Investors may also examine how effectively the fund tracks that benchmark.

An Index Fund's return may differ from its benchmark due to factors such as expenses, cash holdings, transaction costs, rebalancing and implementation differences.

This is where tracking error and tracking difference become relevant.

Read our detailed guide: What is Tracking Error in Index Funds?

Nifty 50 vs Nifty Next 50 for SIP Investing

A Systematic Investment Plan (SIP) is a method of investing a fixed amount periodically in a mutual fund scheme.

SIP itself does not remove the market risk associated with the underlying investment.

Index Funds tracking the Nifty 50 and Nifty Next 50 may both offer SIP facilities, depending on the mutual fund scheme.

The fact that an investment is made through SIP should not be interpreted as an assurance of returns or protection against loss.

Key Characteristics of a Nifty 50 Index Fund

A Nifty 50 Index Fund generally seeks to replicate the Nifty 50 benchmark, subject to the scheme's investment objective and methodology.

• 1. Provides exposure to the Nifty 50 constituents.
• 2. Follows a passive investment approach.
• 3. Portfolio composition changes when the underlying benchmark changes.
• 4. Returns can differ from the benchmark because of tracking difference and other factors.
• 5. The investment remains subject to equity market risk.

Key Characteristics of a Nifty Next 50 Index Fund

A Nifty Next 50 Index Fund generally seeks to replicate the Nifty Next 50 benchmark, subject to the scheme's investment objective and methodology.

• 1. Provides exposure to Nifty Next 50 constituents.
• 2. Tracks companies from the Nifty 100 after excluding Nifty 50 constituents.
• 3. Follows a passive investment approach.
• 4. Its risk and return behaviour can differ from a Nifty 50 Index Fund.
• 5. The investment remains subject to equity market risk.

Can You Invest in Both Nifty 50 and Nifty Next 50 Index Funds?

It is possible to invest in funds tracking both benchmarks. Doing so can provide exposure to different constituents within the Nifty 100 universe.

However, whether such an allocation is appropriate cannot be determined solely from the indices themselves.

Factors such as financial objectives, investment horizon, risk profile, existing portfolio exposure and scheme-specific characteristics may need to be considered before making an investment decision.

What Should You Check Before Choosing an Index Fund?

Whether you are evaluating a Nifty 50 Index Fund, Nifty Next 50 Index Fund, or another passive fund, the benchmark is only one factor to consider.

Investors may also review:

1. Underlying Benchmark
   Understand exactly which index the scheme seeks to track.
2. Tracking Difference and Tracking Error
   Understand how closely the fund has tracked its benchmark.
3. Expense Ratio
   Costs can influence the difference between scheme and benchmark returns.
4. Scheme Investment Objective
   Read the Scheme Information Document to understand how the scheme operates.
5. Riskometer
   Review the applicable risk classification of the mutual fund scheme.
6. Portfolio and Index Characteristics
   Understand the sectors and companies represented by the benchmark.
7. Investment Horizon and Risk Profile
   Consider these factors in the context of your own financial circumstances.

For more details, read: How to Evaluate Index Funds in India

Common Mistakes While Comparing Nifty 50 and Nifty Next 50

A comparison based only on recent performance can overlook important differences. Here are some common mistakes investors may want to avoid:

• 1. Comparing the indices solely on recent returns.
• 2. Assuming historical outperformance will continue.
• 3. Ignoring volatility and downside risk.
• 4. Ignoring the underlying index methodology.
• 5. Assuming all Index Funds tracking the same benchmark are identical.
• 6. Ignoring expense ratio and tracking efficiency.
• 7. Assuming SIP eliminates equity market risk.
• 8. Making an investment decision without reading scheme-related documents.

Nifty 50 vs Nifty Next 50: Myth vs Fact

Nifty 50 or Nifty Next 50: Which One Should You Consider?

There is no single answer that applies to every investor.

The Nifty 50 and Nifty Next 50 represent different groups of companies, and their risk and return characteristics can differ over time.

Instead of asking only which index generated higher returns in the past, it may be more useful to understand:

• 1. Which benchmark the fund tracks
• 2. What companies and sectors the benchmark represents
• 3. How volatile the benchmark has been
• 4. How closely the fund tracks its benchmark
• 5. The scheme's expense ratio and other costs
• 6. The applicable Riskometer
• 7. Your investment objective, horizon and risk profile

Continue Learning About Index Funds

If you want to understand Index Investing in greater depth, explore these MFnxt guides:

• What is an Index Fund in India?
• Beginner's Guide to Index Funds in India
• How to Invest in Index Funds in India
• How to Evaluate Index Funds in India
• What is Tracking Error in Index Funds?
• Index Funds vs ETFs
• Index Funds vs Mutual Funds
• Passive vs Active Investing

Frequently Asked Questions About Nifty 50 vs Nifty Next 50

1. What is the main difference between Nifty 50 and Nifty Next 50?

The Nifty 50 represents 50 large and liquid companies across important sectors of the Indian economy. The Nifty Next 50 represents 50 companies from the Nifty 100 after excluding the Nifty 50 constituents.

2. Is Nifty Next 50 the same as Nifty 50?

No. They are separate indices with different constituents, although both form part of the broader Nifty 100 universe.

3. Can a company move from Nifty Next 50 to Nifty 50?

Index constituents are periodically reviewed. Companies can enter or exit indices according to the applicable eligibility and index methodology.

4. Is Nifty 50 risk-free?

No. Nifty 50 represents equities, and Index Funds tracking it remain subject to equity market risk.

5. Is Nifty Next 50 more volatile than Nifty 50?

The two indices can display different volatility across market periods because their constituents and sector exposures differ. Historical volatility should not be interpreted as a prediction of future behaviour.

6. Which gives better returns: Nifty 50 or Nifty Next 50?

Relative performance changes across market cycles. Past performance of either index does not guarantee or predict future returns.

7. Can I invest through SIP in Nifty 50 and Nifty Next 50 Index Funds?

Mutual fund schemes tracking these benchmarks may offer SIP facilities. Investors should check the relevant scheme documents for available investment facilities and terms.

8. Does SIP reduce the risk of an Index Fund?

SIP is a method of investing periodically. It does not eliminate market risk or guarantee positive returns.

9. Can investors hold both Nifty 50 and Nifty Next 50 Index Funds?

It is possible to hold funds tracking both benchmarks. Whether such an allocation is appropriate depends on factors including financial objectives, risk profile, investment horizon and existing portfolio exposure.

10. What should I check before investing in an Index Fund?

Investors may consider the underlying benchmark, scheme investment objective, Riskometer, expense ratio, tracking difference, tracking error and other scheme-specific information. Scheme-related documents should be read carefully before investing.

11. Are Nifty 50 and Nifty Next 50 Index Funds actively managed?

Index Funds are passive investment products that generally seek to replicate the performance of their specified benchmark, subject to tracking difference and the scheme's investment strategy.

12. What is tracking error in a Nifty Index Fund?

Tracking error is a measure associated with how consistently a fund's returns differ from the returns of its benchmark. Various implementation factors can cause an Index Fund to deviate from its benchmark.

Conclusion

The Nifty 50 vs Nifty Next 50 comparison is useful because the two benchmarks represent different groups of companies within the Indian equity market.

The Nifty 50 represents 50 large and liquid companies across important sectors, while the Nifty Next 50 represents 50 companies from the Nifty 100 after excluding Nifty 50 constituents.

Both can be tracked through passive investment products such as Index Funds and ETFs, but their constituent composition, sector exposure, volatility and performance can differ over time.

Rather than selecting an Index Fund based only on recent returns, investors may benefit from understanding the benchmark, scheme characteristics, costs, tracking efficiency and associated risks.

Most importantly, past performance should not be considered an assurance of future returns, and mutual fund investments remain subject to market risks.

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