Nifty 50 is not a new term. Most of you must have heard this numerous times in the news or while talking to your financial planner. But have you ever wondered why, these days, financial planners are more inclined towards the Nifty 500 than the Nifty 50?
You should know that tracking these indices is much easier than keeping track of multiple stocks separately. But there is much more to this. So, let us find answers to these indices and why the Nifty 500 is used more in the blog here.
Understanding Nifty 50
Nifty 50 is a prominent stock market index that includes NSE’s largest and most traded 50 companies. This acts as a benchmark and represents the key sectors of the economy.
It represents 56% of the market value of all the available shares on the NSE. This makes it a good representation of the most valuable companies in India. Currently the Some of the primary features of Nifty 50 are:
- Includes the 50 largest and top-traded companies.
- Serves as a benchmark of performance for the NSE.
- Focuses on companies with high market capitalization and liquidity.
- Reflects the performance of major sectors like banking, automobile, energy, consumer goods, and others.
- Acts as a reference for mutual funds, ETFs, and others.
Understanding Nifty 500
If you want a better view of the Indian stock market, then the Nifty 500 is a good choice. It represents 91.8% of the market value of all the freely available shares on the NSE. This is one of the reasons why it offers a broader view of the market.
Since it includes 500 companies, it covers varied sectors, which is better for financial decision-making. Nifty 500 share price is near 23700+. Some of the primary features of the Nifty 500 are as follows:
- Offres a broader view of the stock market.
- High level of diversification for better decision-making.
- Represents a wide array of sectors and companies.
- Broad exposure helps in better risk management.
- A better reflection of the market movement.
- Acts as a benchmark for investment decisions and financial planning.
With this, you must have gained a basic idea of Nifty 50 and Nifty 500. Now, let us address why the Nifty 500 is used more by financial planners than the Nifty 50.
5 Reasons Why Nifty 500 is Recommended as Compared to Nifty 50
Both the Nifty 500 and Nifty 50 are market indexes that help analyze stock market performance. However, a few reasons make the Nifty 500 a better benchmark. Here are the primary ones that you should know about:
1] Diverse Composition and Reduced Risk
When considering the composition, the Nifty 500 offers you a better and more diversified look at the market. It includes both large-cap and mid-cap companies. This means that when considering this for investing decisions, you are considering multiple sectors and businesses simultaneously. This helps in reducing risk.
2] High Historic Returns
One major reason for selecting the Nifty 500 over the Nifty 50 is the yearly returns. As per a report, the yearly return of the Nifty 500 for 1 year was 34.1% as compared to 22.0% for the Nifty 50. This outperformance is definitely a reason to go for the Nifty 500 while you are planning your investments.
3] Better Representation of the Economy
Nifty 500 is crafted by including multiple companies from varied sectors. This ensures that every sector gains a fair representation in the index. Hence, this is a better representation of the economy. Since it includes a wider range of businesses and services, it offers a more accurate reflection of the market.
4] Better Tracking
Due to its broad coverage, Nifty 500 acts as a superior benchmark of portfolio performance. This allows investors and fund managers to analyze and compare the returns better.
Conclusion
There is no doubt that both Nifty 50 and Nifty 500 offer great insights for investing. However, if you are looking for large market exposure and diversification opportunities, then considering Nifty 500 companies is more suitable.
