Nifty 50 Equal Weight Index Funds: Performance, Returns & How They Compare with Nifty 50
- Ayesha Bee
- 3 days ago
- 4 min read
Introduction: What Are Nifty 50 Equal Weight Index Funds?
When most investors think of passive investing in India, the Nifty 50 Index is usually the first benchmark that comes to mind. It represents the 50 largest listed companies in India and is market capitalization-weighted, meaning companies with a higher market value—such as Reliance Industries or HDFC Bank—carry significantly more weight in the index.
Nifty 50 Equal Weight Index Funds, however, follow a different philosophy.
Instead of assigning weights based on market capitalization, each of the 50 stocks in the index is given an equal weight (around 2% each) at every rebalancing. This ensures that no single stock or sector dominates the portfolio, allowing mid-sized constituents within the Nifty 50 to make meaningful contributions to returns.
How Are They Different from the Traditional Nifty 50?
The key difference lies in how returns are generated.
In a market-cap weighted Nifty 50, performance is largely driven by a handful of heavyweight stocks. If the top 5–6 companies perform well, the index can deliver strong returns—even if many other stocks lag.
In contrast, a Nifty 50 Equal Weight Index spreads exposure evenly across all constituents. This leads to:
o Better diversification
o Reduced concentration risk
o Higher participation from broader market leaders
Equal-weight indices also tend to benefit during market phases where returns are broad-based, rather than narrowly led by a few large stocks. However, they may underperform during phases when only large-cap heavyweights dominate market returns.
In essence, while both track the same 50 companies, the investment experience and return drivers can be very different, making Nifty 50 Equal Weight Index Funds an interesting alternative for investors seeking balanced exposure within large-caps.
Interestingly, the Nifty 50 Equal Weight Index has consistently outperformed the traditional Nifty 50 across multiple time horizons.
Time Period | NIFTY 50 (%) | NIFTY 50 Equal Weight TRI (%) |
1 Year | 10.59 | 13.75 |
3 Year | 14.43 | 18.81 |
5 Year | 13.86 | 18.41 |
Data Source: Performance data used in this analysis has been sourced from Association of Mutual Funds in India (AMFI).
1-Year Performance Comparison: Nifty 50 Equal Weight Index Funds vs Benchmark
The Nifty 50 Equal Weight TRI delivered a 1-year return of 13.75%, serving as the benchmark for comparison.
All Nifty 50 Equal Weight Index Funds underperformed the benchmark over the 1-year period.
Most funds showed closely clustered returns in the 13.1%–13.2% range, indicating relatively tight tracking of the index.
Kotak Nifty 50 EWIF was a clear outlier, posting a lower return of 12.46%, reflecting higher tracking deviation during the period.
The performance gap between funds and the benchmark can be attributed to expense ratios, tracking error, cash holdings, and rebalancing costs.
Despite minor underperformance, the overall trend suggests that equal weight index funds effectively capture the broad market movement, with differences largely driven by fund efficiency rather than strategy.
3-Year Performance Comparison: Nifty 50 Equal Weight Index Funds vs Benchmark
The Nifty 50 Equal Weight TRI delivered a strong 3-year CAGR of 18.81%, setting a high benchmark for comparison.
All the Nifty 50 Equal Weight Index Funds slightly underperformed the benchmark over the 3-year period.
Fund returns remained closely clustered between 18.13% and 18.24%, indicating strong consistency and low dispersion among fund performances.
DSP Nifty 50 EWIF emerged as the best performer among peers with a return of 18.24%, though still marginally below the benchmark.
The small gap between fund returns and the index can be attributed to expense ratios, tracking error, and operational costs, which become visible even over longer horizons.
Overall, the chart highlights that equal weight index funds have been effective in capturing the long-term performance of the strategy, with only minor deviations from the benchmark.
Performance Since Launch: Nifty 50 Equal Weight Index Funds vs Benchmark
While benchmark returns appear consistently higher than fund returns, it is important to note that “since launch” periods differ across fund houses, making absolute returns not directly comparable.
A more meaningful approach is to evaluate the gap between each fund’s return and its respective benchmark return, rather than comparing returns across funds.
Based on this tracking gap analysis:
HDFC Nifty 50 EWIF shows the lowest difference, indicating the most efficient tracking of the index.
This is followed by SBI Nifty 50 EWIF, Aditya Birla Sun Life Nifty 50 EWIF, and ICICI Prudential Nifty 50 EWIF.
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Conclusion
Nifty 50 Equal Weight Index Funds offer a differentiated way to invest in large-cap equities by reducing concentration risk and enabling broader market participation. The strategy has outperformed the traditional Nifty 50 across multiple time horizons, highlighting its effectiveness during broad-based market rallies.
While individual funds marginally underperform the benchmark due to costs and tracking error, the strategy itself remains strong. For long-term investors, focusing on tracking efficiency rather than absolute returns is key, making fund selection crucial, often with guidance from an Investment Adviser. Overall, Nifty 50 Equal Weight Index Funds can be a valuable core allocation for investors seeking balanced exposure within large caps.