How can one buy a Nifty 50 ETF and what is the cost? (2024)

Nifty 50 ETF Investors with a long-term horizon eyeing a low-cost equity product can consider an allocation to Nifty 50 ETF

What is Nifty 50?
The Nifty 50, one of the most popular indices used to track the Indian stock market, is a benchmark index that represents the weighted average of 50 of the largest Indian companies listed on the National Stock Exchange (NSE). The stocks in the index, however, do not have equal weightages. This is because companies with a higher free-float market cap enjoy higher weightages in the index.

What historical return has Nifty 50 generated and who can buy it?
Over the last 5 years, Nifty 50 has returned an annualised 11.78% while over a 10-year period it has returned 12.86%. The returns have been volatile and there have been times when it declined 55% in a year, and also rose by 108%. Financial planners believe Nifty 50 works well for do-it-yourself (DIY) investors or those who plan to hold for the long term and do not want any fund manager risk or bias.

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How can one buy a Nifty 50 ETF and what is the cost?
Nifty 50 ETF can be bought by any investor on stock exchanges using a broking and demat account. It can be bought live during trading hours and scores over an index fund, which is bought at only the day-end NAV. It is one of the cheapest equity funds that an investor can buy with expense ratio varying between 5 and 15 basis points. The investor has to, however, bear broking and annual demat charges. On the other hand, if you decide to invest directly in stocks depending on their weightages in the Nifty 50 index, it will be expensive and complicated and need a large sum of money as compared to buying a single unit.

How often do the stocks in NIFTY 50 change?
The 50 companies that constitute the Nifty 50 index are not fixed. The index is rebalanced on a semi-annual basis in June and December every year. Through the rebalancing process, the index removes stocks that would have fallen in market cap or those that are delisted or are suspended. These are replaced by ones whose market cap has increased. This rebalancing helps investors as the process increases the exposure of Nifty 50 to emerging sectors and stocks.

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Nifty 50 Index: The Basics

The Nifty 50 is a prominent benchmark index in the Indian stock market. Comprising 50 of the largest companies listed on the National Stock Exchange (NSE), it serves as a key indicator of market performance. Notably, the index employs a weighted average methodology, with companies having higher free-float market capitalization enjoying greater influence.

Historical Returns of Nifty 50

Examining the historical performance of Nifty 50 is essential for informed decision-making. Over the past 5 years, the index has delivered an annualized return of 11.78%, while the 10-year period reflects a return of 12.86%. It's crucial to note the volatility, with instances of a 55% decline and a remarkable 108% rise. Financial planners advocate Nifty 50 for do-it-yourself (DIY) investors with a long-term horizon, seeking to avoid fund manager risks or biases.

Nifty 50 ETF: Buying and Cost

For investors eyeing a low-cost equity product, the Nifty 50 ETF emerges as an attractive option. The ETF can be conveniently purchased on stock exchanges using a broking and demat account. Unlike index funds, Nifty 50 ETFs can be bought live during trading hours. The cost advantage is evident, with expense ratios ranging between 5 and 15 basis points, making it one of the most economical equity funds. However, investors need to bear broking and annual demat charges.

Changing Composition of Nifty 50

The composition of the Nifty 50 index isn't static. The index undergoes a semi-annual rebalancing in June and December each year. This process involves removing stocks that have experienced a decline in market cap, are delisted, or suspended, and replacing them with those exhibiting increased market cap. This strategic rebalancing enhances the index's exposure to emerging sectors and stocks, providing benefits to investors.

In conclusion, Nifty 50 ETFs present a compelling option for investors with a long-term perspective, offering cost-effectiveness and exposure to diverse sectors. Understanding the dynamic nature of the index and its historical performance is paramount for making informed investment decisions. Whether you are a seasoned investor or just stepping into the world of finance, Nifty 50 ETFs warrant consideration in your investment strategy.