Moneycontrol PRO
UPCOMING EVENT:Special webinar on Highlights of global investing in 2021 and what lies ahead' at 2 pm on 21st January, 2022. Register Now!

MC30 Top Picks: Why ICICI Prudential Nifty Next 50 Index fund is a must-have passive scheme for investors

The Nifty Next 50 has ‘tomorrow’s bluechip companies’ with the potential for healthy returns

November 09, 2021 / 09:28 AM IST
Passive funds have gained attention from many investors over the past 2-3 years. But most start by investing in funds that are benchmarked to the Nifty 50 and Sensex. But for those seeking to go down a bit more on the market cap curve, Moneycontrol recommends the ICICI Prudential Nifty Next 50 Fund. The Nifty Next 50 or NN50 represents 50 companies after the Nifty 50 constituents. It is a relatively diversified index and has the potential to generate reasonable returns with lower risk over the long run. It is referred as a set of ‘tomorrow’s bluechip companies.’ At present, 16 passive funds (nine index funds, six ETFs and one FoF) track the NN50. MC30 – Moneycontrol’s curated basket of 50 mutual fund schemes – recommends ICICI Prudential Nifty Next 50 Index Fund.
NN50 has given impressive returns, consistently. It not only does well against the Nifty 50 index, but also compares favourably to midcap indices. Performance measured by five-year rolling return calculated from the last 15 years’ data shows that the Nifty Next 50 total returns index (TRI) delivered 14.3 percent returns (compounded), while the Nifty 50 TRI gave 10.7 percent. Meanwhile, Nifty Midcap 100 TRI delivered 12.9 percent. However, over the past 15 months, NN50 has underperformed N50 due to a polarized equity market and larger allocation to defensive stocks.
The Nifty Next 50 often has a few mid-cap stocks as well, which typically make up 10-12 percent of the portfolio. This helps spice-up returns. PI Industries, Hindustan Petroleum Corporation, ACC and Indraprastha Gas were some midcap names as per the latest portfolio.
“NN50 is typically a more diversified index than the N50. Now, the N50 often sees some of its top holdings cross 10 percent each. NN50, on the other hand, typically doesn’t see its largest holdings cross even 4 percent,” says Chintan Haria, Head Product and Strategy at ICICI Prudential AMC. The top 10 holdings in the NN50 are typically around 30-40 percent. In the case of N50 and N100, they are around 50-60 percent.
NN50 also offers good sectoral diversification compared to N50. Its top holdings are typically in defensive sectors. The total weight of consumer non-durables, pharmaceutical and utilities sectors is around 34 percent as of September 2021. In N50, the weightage for these sectors is only around 13 percent. It helped NN50 outperform N50 in most of the secular bull-run years. However, the cyclically heavy N50 (around 50 percent) helped it to deliver higher return than NN50 in the polarized markets seen in 2018 and 2020.
NN50 is an incubator for the N50. NN50 stocks have the potential to become future bluechip companies. Whenever new companies enter into N50 basket, they are selected from the NN50. Over the last 20 years, about 44 stocks have moved from NN50 to N50. Similarly, stocks that are dropped out from N50 are dumped in NN50.
Index funds with lower Tracking Error, lower expense ratio and higher corpus are better for investment. ICICI Prudential Nifty Next 50 Index Fund is one such scoring on all counts among peers.
Although N100 consists of all stocks that are in the two indices – N50 and NN50 – it’s not as simple as it looks. Around 85 percent of N100 lies in N50 stocks, and just 15 percent lies in the NN50 constituents, as of September 2021. As far as the stocks and sectoral compositions are concerned, N50 and NN50 are complement to each other. Hence, both index funds can be part of one's portfolio. In MC30, you can find two schemes tracking N50 --Nippon India ETF Nifty BeES and UTI Nifty Index Fund-- one ETF and an index fund. You can choose the scheme as per your convenience.
Dhuraivel Gunasekaran

stay updated

Get Daily News on your Browser
ISO 27001 - BSI Assurance Mark