Introduction

The NIFTY 50 and NIFTY Next 50 indices listed on the National Stock Exchange (NSE) represent different market segments across investment and risk profiles. It's essential to look at their respective holdings, their historical performance, and whether the NIFTY 50 or NIFTY Next 50 are appropriate to invest in based on your goals. This article will outline the key differences, giving you the necessary information to make the right choice.

What is the NIFTY 50?

The NIFTY 50 is India's leading stock market index, representing the most prominent 50 large-cap companies traded on the NSE. The Nifty 50 Index represents about 55.48% of the free float market capitalisation of the stocks listed on NSE as of March 28, 2025. The NIFTY 50 is characterised by low volatility (standard deviation ~15-18%) and considerable returns (~11.8% annualised returns from 2010 – 2025). However, these are historical averages, not guaranteed future returns. Its low volatility and stable nature make it much more suited for conservative investors or investors looking to invest over a 3 - 7-year horizon. If you look at ETFs to expose yourself to the NIFTY 50, consider the Nippon India ETF Nifty Bees and the SBI Nifty 50 ETF, which have expense ratios as low as 0.04 - 0.2%.

What is the NIFTY Next 50?

The NIFTY Next 50 index comprises 50 companies ranked 51–100 based on free-float market capitalisation and are considered the "next big players" expected to be added to the NIFTY 50. It includes companies across sectors, widely in different sectors, including Consumer Services like Zomato, Healthcare like Apollo Hospitals, and Industrials like Adani Enterprises.  This index typically accounts for around 10–12% of the NSE’s free-float market capitalisation, though this proportion can vary year to year based on market dynamics.

These companies have much larger growth potential, and the NIFTY Next 50 index has consistently outperformed the NIFTY 50, providing an average return at ~17–18% CAGR from 2002-2020 with higher volatility (standard deviation of ~20-22%). However, the returns can vary across market cycles. It may suit investors with long-term investment horizons (7+ years) who are comfortable with market fluctuation.

Performance Trends

The NIFTY 50 performs well in stable or bearish markets with its exposure to large caps. After the COVID-19 crash of 2020, the NIFTY 50 had recovered in several months. The NIFTY Next 50 has exposure to growth stocks that perform well in bullish stock market phases. For example, in 2017, an excellent year for growth, the NIFTY Next 50 produced a 37% return compared to a 28% return for the NIFTY 50. In late April 2025 the value of the NIFTY 50 is ~24,300, both indices are benefiting from the bullish momentum in the Indian economy, however, an investment in the NIFTY Next 50 index will have greater volatility because of the broad-based mid-cap exposure and the external risks of inflation are affecting every aspect of the economy.

According to risk-adjusted metrics the NIFTY Next 50 has a much better risk adjusted return when comparing through Sharpe ratio (~0.8 versus the NIFTY 50 ~0.6 (2011-2021)) but the maximum drawdown, for example -35% in 2020, can show the investor that there is extra downside risk. Investors will have to evaluate their willingness to trade off extra potential returns for potential extra risk using their investment objectives.

Investment Options

Index funds/ETFS are available for both indices. The NIFTY 50 index and index funds include many highly liquid options like the HDFC Nifty 50 Index Fund (Large Cap, Low-Cost). The NIFTY Next 50 index also has index-tracking funds. This index has expected growth, but the expense ratios may include a 0.1% to 0.3% higher cost due to being an index fund. Both the NIFTY 50 and NIFTY Next 50 index ETFS & index funds offer an option to invest using a Systematic Investment Plan to allow the investor to take emotion or psychology out of the investment process and help to avoid mistiming the investment cycle. This will allow the retail investor to invest in the market professionally.

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Which Index Suits You?

Your choice depends on your risk tolerance, investment horizon, and financial objectives:

Opt for NIFTY 50 if:

• You prefer relatively low risk, and as a result, you want stability and moderate returns.

• You're either relatively new to investing or have a shorter investment horizon (3–7 years).

• You prefer exposure to India's oldest and generally largest companies.

• Example: A retiree creating a low-risk portfolio may invest in a NIFTY 50 ETF for a constant income with reduced risk.

You should choose NIFTY Next 50 if:

• You are willing to tolerate higher volatility when pursuing higher returns.

• You have a long-time horizon (7+ years) and can withstand the market cycles.

• You want exposure to potential emerging leaders across multiple sectors.

• Example: A young professional saving for retirement may want to buy a NIFTY Next 50 index fund to capture growth.

Conclusion

The NIFTY 50 and NIFTY Next 50 provide different routes to wealth creation in India's dynamic market. The NIFTY 50 offers stability and fairly good liquidity and appeals to cautious investors who want to make a stable long-term investment. The NIFTY Next 50 is considered great for investors looking for growth beyond India's top 50 companies and mainly focuses on long-term returns. You can build a strong portfolio when you understand the differences between the two indices and align them with your risk profile. Always research and seek professional advice to help you invest wisely in India's growth story.

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