About the Nippon India Nifty 500 Equal Weight Index Fund
Nippon India Mutual Fund has recently brought in a new scheme, the Nippon India Nifty 500 Equal Weight Index Fund. This open-ended scheme mirrors the Nifty 500 Equal Weight Index, offering investors exposure to a broad market index with a unique twist: the assumption in the portfolio model is that each stock in the portfolio has the same proportion. This approach leads to more diversified and less risky portfolios with large-cap, mid-cap, and small-cap formation since it eliminates the risk of having a highly skewed portfolio toward large-cap stocks which is common when top stocks only are selected.
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To whom does the Nippon India Nifty 500 Equal Weight Index Fund Attract?
The overall suitability of this fund is probably most appreciated by those who aim at attaining a broader market return with better risk exposure. It caters to those who want diversification across large-cap, mid-cap, and small-cap categories and are not so dependent on large-caps. Since all the stocks are equally weighted, the concentration risk is well reduced making it favorable for an investor of the moderate risk-taking propensity.
This fund can also perform poorly, especially in the years when large capital stocks rule the market over other stock funds. In the words of Sidhavelayutham M, CEO & Founder of Aliceblue, this fund has comparatively low volatility than the typical market capitalization-weighted index, but it is not immune to it, therefore it is right for those investors who are willing to compromise on risk for growth.
Analyzing the Tax Consequences of Investing in the Nippon India Nifty 500 Equal Weight Index Fund
The tax consideration of this fund is the same as other equity funds. Capital gains realized from the sale of stock, bonds, or any other capital asset held for less than twelve months are subject to a tax rate of 15%. Capital gains that accrue on any securities held for over one year are known as long-term capital gains and any amount over Rs 1 lakh earned in this manner is taxed at 10%. Therefore, the fund is suitable for long-term investors with a moderate risk-bearing capacity who want to invest in a diversified basket with an expectation of value appreciation in the long run.
Pros of investing in the Nifty 500 Equal Weight Index Fund
Some advantages are enjoyed by investing in the Nippon India Nifty 500 Equal Weight Index Fund as compared to a normal large-cap fund. The consideration of the equal value of the 500 stocks within the portfolio makes the concentration risk lower than the other types of portfolios. This means that the returns of the fund are not skewed by the big-cap stocks, but contain stock exposures across large, mid, and small capitalization stocks.
However, an equal-weighted strategy can be quite beneficial in boosting diversified returns because in some markets, ‘smaller’ stocks appear to perform better. Also, this strategy enlarges the possibility of capturing further growth opportunities with a broader spectrum of companies, which makes this variant highly questionable for investors who are looking for a secure and steadily growing investment prospect.
Nifty 500 Equal Weight Index vs. Nifty 500 Index: Awareness of Gender Difference
The stocks in the Nifty 500 Equal Weight Index are weighted, while the stocks in the traditional Nifty 500 Index are normalized. Just like the Nifty index, the Nifty 500 index will be calculated based on the free-float market capitalization which implies that larger stocks will have a greater say than the smaller ones. This can cause hazards of higher concentration risk because index performance may be overly influenced by only large capitalization stocks. Though this leads to greater returns during the times that the big capitalization stocks are outperforming, this, in turn, readjusts the volatility of the index.
On the other hand, the Nifty 500 Equal Weight Index assigns the same weight to all 500 indexes which brings less risk on concentration level and more portfolio diversification. This tends to lead to lower risk and return volatility because both mid-cap and small-cap stocks are given equal weightage in the index. But it also entails a relatively low return in a year when large-cap stocks are doing well better than the rest of the index representing companies of varying sizes.
Conclusion: Is The Nippon India Nifty 500 Equal Weight Index Fund Suitable for You, What You Need to Know
Just in case you are an investor with mid-risk affinity exposed to the broad equity market with a proper risk distribution, the Nippon India Nifty 500 Equal Weight Index Fund could prove to be an excellent inclusion. It is distinguished from conventional equity indices and equity investment strategies by its diversification and equal investment in stocks Thus, it brings the advantages of minimized risks on certain stocks and balanced returns On equity investment in the Indian market.
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