The Nifty 50 is the natural choice for most Indian investors when it comes to stock market investing. These are the top 50 most reliable businesses, also known as blue-chip stocks, which are comparatively stable. However, if you can effectively manage the risks, you can unlock potential returns by adding stocks to your portfolio outside the Nifty 50.
Let us look at how to invest beyond Nifty50 in the Indian market as we look at various investing strategies that can increase your returns and help you diversify your portfolio.
Exploring Other Indices
Let’s see how you can invest beyond Nifty 50.
Nifty Next 50
Businesses with market capitalizations ranging from 51 to 100 are included in the Nifty Next 50. This index frequently contains companies that have the potential to grow quickly and eventually become blue-chip stocks.
The Nifty Next 50 has historically outperformed the Nifty 50, returning about 68.5% over the last three years as opposed to the Nifty 50’s 38.5%. This provides an opportunity for investors to opt for Nifty Next 50 funds.
Nifty Midcap 150
The Nifty Midcap 150 index consists of 150 companies ranked 101–250 by market capitalization. In the past, this index has outperformed the Nifty 50 with its consistently good performance.
For instance, over the last ten years, the Nifty Midcap 150 has returned about 20% yearly on average, while the Nifty 50 has returned about 14%. This higher return is due to midcap companies’ potential for rapid expansion as they expand their market presence.
Nifty Smallcap 250
250 small-cap companies, ranked from 251 to 500 by free-float market capitalization, comprise the Nifty Smallcap 250 Index.
Its goal is to assess the performance of these smaller businesses, which frequently have more room for expansion than larger companies.
Investors looking for greater returns will find the Nifty Smallcap 250 index appealing due to its notable growth potential.
For instance, the Nifty Smallcap 250 has demonstrated its potential for more significant gains over the last ten years with average annual returns of about 18%.
Strategies for Investing Beyond Nifty 50
Here are some strategies that can help you invest beyond Nifty 50.
1. Equal Weighting Strategy
One effective strategy is to invest equal amounts across different indices. For example, the percentage investment into different indices can be divided in the following manner:
- Nifty Next 50 ETFs: 25%
- Nifty Midcap 150: 25%
- Nifty Smallcap 250: 25%
- In specific Sectoral Indices: 25%
By taking a balanced approach, you can effectively manage risk and capitalize on growth in various market segments.
2. Systematic Investment Plans (SIPs)
By making regular investments and taking advantage of market declines to reduce your average purchase cost, a Systematic Investment Plan (SIP) can help boost returns by eventually spurring growth when markets turn around.
Utilizing the power of compounding, SIPs enable you to manage risk through consistent, disciplined investing and optimize returns.
3. Diversification Across Asset Classes
Consider distributing your investments among several asset classes, such as bonds or real estate, in addition to diversifying across indices. Diversification has the potential to improve returns while lowering overall portfolio risk.
A balanced strategy permits growth during bullish times while providing a buffer against market downturns.
Distributing your investments among several indices can lessen the impact of subpar performance from any stock or sector. Gains from another industry, for example, can stabilize your portfolio if one underperforms.
Conclusion
In summary, straying from traditional Nifty 50 stocks can result in promising opportunities in mid-cap and small-cap companies with unrealized growth potential. By staying informed and adaptable, you can successfully manage risks and navigate the market’s highs and lows.
