How to invest in Nifty 50

Nifty 50 is an index in the Indian stock market. Nifty 50 tracks the largest 50 companies listed in the Indian Stock market. This index comprises the most valuable businesses in the country. In the last 25 years, the index has grown almost 14 times its initial value this fact makes Nifty 50 a lucrative investment option for many investors.

Investing in Nifty 50 actually means that you invest your money in the group of 50 companies that are part of the Nifty 50 index. Unfortunately, it is not possible to buy stakes directly into Nifty 50. But, there are 4 methods to invest in Nifty 50. These methods include:

• Investing in Nifty 50 directly

• Investing in Nifty 50 Via Index funds

• Investing in Nifty 50 via ETFs

• Investing in Nifty 50 via derivatives

In this blog, we will be discussing how to invest in Nifty 50 via 4 methods, their advantages, disadvantages, and some tips to generate maximum returns from your investment.

Table of Contents

1. How to invest in Nifty 50 directly?

2. How to invest in Nifty 50 via Index funds?

3. How to invest in Nifty 50 via ETFs?

4. How to invest in Nifty 50 via derivatives?

How to invest in Nifty 50 Directly?

Investing in Nifty 50 directly is a simple strategy in which investors buy all the stocks that form the Nifty 50 basket in the same proportion similar to Nifty 50. This strategy might sound simple to a beginner but is a capital-intensive exercise. Buying each stock listed in Nifty 50 might be a challenge and investors would also have to actively manage their portfolio and make changes as per the changes in Nifty 50 to receive similar returns.

In order to make similar returns as Nifty 50 one should be aware of rebalancing. The Nifty 50 index is rebalanced twice in a year, In June and December. During rebalancing stocks with reduced market cap are exchanged with emerging stocks with higher market cap.

State Bank of India, HDFC Bank, Bajaj Auto, Reliance Industries, Hindustan Unilever, Tata Motors, Larsens & Turbo, HDFC Ltd, ITC, Hindalco Industries, ICICI Bank and Tata stell have been part of the NIfty 50 index since Day 1.

List of companies and their weightage in Nifty 50

Here is the list of the top 10 companies by weightage that contribute to the Nifty 50 list.

1. HDFC Bank Ltd - 14.14%

2. Reliance Industries Ltd - 9.67%

3. ICICI Bank Ltd - 7.91%

4. Infosys Ltd - 6.04%

5. ITC Ltd - 4.64%

6. Tata Consultancy Services Ltd - 4.26%

7. Larsen & Toubro Ltd - 4.02%

8. Axis Bank Ltd - 3.55%

9. Kotak Mahindra Bank Ltd - 2.93%

10. State Bank of India - 2.62%

Find all companies in the picture below,

Lits of companies in Nifty 50

How to invest in Nifty 50 via Index funds?

One of the most efficient ways to invest in Nifty 50 is to invest via Index Mutual Funds. These funds try to replicate the returns of Nifty 50 by investing in all the 50 companies included in Nifty 50 index and in the same proportion as in Nifty 50. Basically, the AMCs that build these NIFTY 50 index mutual funds do direct investment into all the companies listed in the index so that the customers don't have to invest in every company themselves.

Investing in Nifty 50 index funds is highly advantageous over direct investing because of the following:

1. Low capital requirement.

2. Each unit of the Index Fund contains a small portion of all the 50 companies.

3. Low fees compared to other mutual funds

4. Does not require a Demat account

To invest in Nifty 50 via index funds follow the steps below

Step 1: Gather information about companies that provide Nifty-50 based Index Finds

Step 2: Select the right Index fund based on fees charged, CAGR, Company reputation, and other factors.

Step 3: Invest in the selected Index fund by creating an account directly with the Investor or brokers such as Paytm money, Angel broking, Zerodha, GROW etc.

List of Nifty-50-based Index Funds and Issuer

1. Aditya Birla Sun Life Nifty 50 Index Fund

2. AXIS NIFTY 50 Index Fund Direct Growth

3. Bandhan Nifty 50 Index Fund - Regular Plan

4. DSP Nifty 50 Index Fund

5. Edelweiss Nifty 50 Index Fund

6. Franklin India NSE NIFTY 50 Index Fund

7. HDFC Index Fund-Nifty 50

8. HSBC Nifty 50 Index Fund

9. ICICI Prudential Nifty 50 Index Fund

10. Kotak Nifty 50 Index Fund - Index Fund

11. LIC MF Nifty 50 Index Fund

12. Motilal Oswal Nifty 50 Index Fund Direct Growth

13. Navi Nifty 50 Index Fund Direct Growth

14. NIPPON India Index Fund- NIFTY 50

15. SBI Nifty Index Direct Plan Growth

16. Tata Nifty 50 Index Fund

17. Taurus Nifty50 Index Fund

18. UTI Nifty 50 Index Fund

How to invest in Nifty 50 via ETFs

ETF (Exchange-traded funds) is an investment instrument similar to mutual funds. The value of these instruments is derived from an underlying asset. Hence, ETF which tracks the Nifty 50 allows you to invest in the Nifty 50 index. But, ETFs come with an additional benefit i.e. ETFs can be traded on the stock market. The ability to trade ETFs during market sessions provides flexibility similar to stock trading.

In order to select the right ETF for investing in Nifty 50 follow the steps mentioned below,

Step 1: Create a list of ETFs that track the Nifty 50

Step 2: Select the best ETF based on ETF price, Liquidity, Expense ratio, and Tracking Error.

Step 3: Buy units of the ETF from the AMC directly or through brokers

List of ETFs tracking Nifty 50

1. Nippon India ETF Nifty BeES

2. SBI-ETF Nifty 50

3. Nippon India Nifty Pharma ETF

4. ICICI Prudential Nifty ETF

5. UTI-Nifty Exchange Traded Fund

6. Bharat 22 ETF

7. Mirae Asset Nifty 50 ETF

8. Kotak Nifty ETF

9. ICICI Prudential Alpha Low Vol 30 ETF

10. Aditya BSL Nifty ETF

11. HDFC Nifty 50 ETF

12. Motilal Oswal M50 ETF

13. Quantum Nifty ETF

14. Tata Nifty India Digital Etf

15. Tata Nifty Exchange Traded Fund

16. LIC MF ETF-Nifty 50

17. Axis Nifty ETF

18. DSP Nifty 50 ETF

19. Indiabulls NIFTY50 Exchange Traded Fund

20. IDFC NIFTY ETF

21. Invesco India Nifty Exchange Traded Fund

22. Edelweiss Nifty 50 ETF

How to invest in Nifty 50 via derivatives

Investors planning to invest in Nifty 50 can also invest in the index by buying Future and Options contracts. As the name signifies, these contracts derive their value from an underlying asset such as the Nifty 50 index and similar. Hence, Investors can trade with derivates to invest in the Nifty 50 index.

To Invest in Nifty 50 via derivatives, Firstly you need a demat account that allows you to invest in derivatives. Next do complete research to select the right contract for yourself, either a future contract that is similar to forwards or Options that give you the right to trade the contract on particular days.

There are a few points to be aware of while dealing with this instrument.

1. Investing via derivates does not give you ownership into the Nifty 50 index rather it gives you the right to buy or sell the Nifty 50 index at a particular price.

2. Derivatives are short time and these contracts come with a 3-month expiration period, hence you have to re-apply for your positions every time.

3. Derivatives are highly speculated

Conclusion

All in all, there are multiple ways by which one can invest in the Nifty 50 index but each investment strategy is unique and has its own pros and cons. Hence if you are new to the stock market then you should choose to invest via ETFs or Index funds that track the Nifty 50. The other two options that is investing directly and via derivatives are much more complicated and require active participation to derive benefits from the Nifty 50 index.