Nifty 100 Index Vs Nifty 100 Equal Weight Index – Which is better?

After I wrote an article comparing the Nifty 50 to the Nifty 100, a reader inquired about the better option between Nifty 100 Index Vs Nifty 100 Equal Weight.

Many index investors compare between Nifty 50 and Nifty 50 Equal Weight and judge that all other equal weight indices reduce the risk. However, while this may true for the Nifty 50 versus Nifty 50 Equal Weight Index, but not true for other equal weight indices.

Refer my earlier post – Nifty 50 Index Vs Nifty 100 Index – Which Is Better?

What is Nifty 100 Equal Weight Index?

The Nifty 100 Equal Weight Index comprises the same constituents as the Nifty 100 Index (free float market capitalization-based Index). The Nifty 100 tracks the behaviour of a combined portfolio of two indices viz. Nifty 50 and Nifty Next 50.
Each constituent in Nifty 100 Equal Weight Index is allocated fixed equal weight at each re-balancing.

The base date for Nifty 100 Equal Weight Index is also 1st Jan 2003 with a base value of 1000 like Nifty 100.

Nifty 100 Index Vs Nifty 100 Equal Weight Index – Which is better?

As both the Nifty 100 Index and the Nifty 100 EW Index have a base date of 1st Jan 2003, I am comparing the data of Nifty 50 TRI, Nifty 100 TRI, and Nifty 100 EW TRI from the date of 1st Jan 2003. We have around 5537 daily data points from 1st Jan 2003 to 21st June 20024.

As usual, let us see the lump sum movement of all three Indices

Lumpsum Investment of Rs.1 lakh in Nifty 50 TRI Vs Nifty 100 TRI Vs Nifty 100 EW TRI

After conducting a thorough point-to-point analysis, it becomes evident that Nifty 100 EW outperforms other options. Nevertheless, it is crucial to consider drawdowns as well in order to fully comprehend the associated risks.

Drawdown refers to the decline in the value of an investment or portfolio from its peak to its lowest point over a specific period. It is a measure of downside risk, indicating how much an investor could potentially lose from the highest point before the value recovers.

Drawdown of Nifty 50 TRI Vs Nifty 100 TRI Vs Nifty 100 EW TRI

You can easily visualize the risk involved in Nifty 100 Equal Weight Index compared to Nifty 50 and Nifty 100.

Let us now look into the rolling returns of 1 Yr, 3 Yrs, 5 Yrs, and 10 Yrs.

# 1 Year Rolling Returns Of Nifty 50 TRI, Nifty 100 TRI and Nifty 100 EW TRI

Nifty 100 Index Vs Nifty 100 Equal Weight Index

Even though for almost 51% times the Nifty 100 Equal Weight TRI outperformed the Nifty 50 and 54% times with Nifty 100, it is not at higher risk.

The volatility can be easily visualized if we draw the 1-year rolling standard deviation or rolling risk of all three indices.

The standard deviation quantifies the extent to which returns may differ from the mean return. Essentially, it represents the mean deviation.

The standard deviation is computed using daily returns and subsequently annualized by multiplying it by the square root of the total trading days (250-252) in a year based on the rolling year one wishes to calculate (1 Yr, 3 Yrs, 5 Yrs or 10 Yrs).

In my previous posts, I have refrained from conducting this rolling risk calculation. However, I believe it is crucial to present it here, as it will provide you with a clear understanding of the risk involved.

1 Yr Rolling Risk Nifty 50 TRI Vs Nifty 100 TRI Vs Nifty 100 EW TRI

You noticed that Nifty 50 and Nifty 100 almost look identical. However, just look at the volatility of Nifty 100 EW.

# 3 Years Rolling Returns Of Nifty 50 TRI, Nifty 100 TRI and Nifty 100 EW TRI

3 Yrs Rolling Returns of Nifty 50 TRI Vs Nifty 100 TRI Vs Nifty 100 EW TRI

Even though for almost 53% times the Nifty 100 Equal Weight TRI outperformed the Nifty 50 and 52% times with Nifty 100, it is not at higher risk.

The risk and volatility can be easily visualized if we graph the 3-year rolling standard deviations or risk of all three.

3 Yrs Rolling Risk Nifty 50 TRI Vs Nifty 100 TRI Vs Nifty 100 EW TRI

Here also you can notice the visible higher risk in Nifty 100 EW compared to Nifty 50 and Nifty 100.

# 5 Years Rolling Returns Of Nifty 50 TRI, Nifty 100 TRI and Nifty 100 EW TRI

5 Yrs Rolling Returns of Nifty 50 TRI Vs Nifty 100 TRI Vs Nifty 100 EW TRI

Even though for almost 58% times the Nifty 100 Equal Weight TRI outperformed the Nifty 50 and 53% times with Nifty 100, it is not at higher risk.

The risk and volatility can be easily visualized if we graph the 5-year rolling standard deviations or risk of all three.

5 Yrs Rolling Risk Nifty 50 TRI Vs Nifty 100 TRI Vs Nifty 100 EW TRI

No difference for 5 years rolling risk to what we have compared for 1 year and 3 years rolling risk.

# 10 Years Rolling Returns Of Nifty 50 TRI, Nifty 100 TRI and Nifty 100 EW TRI

10 Yrs Rolling Returns of Nifty 50 TRI Vs Nifty 100 TRI Vs Nifty 100 EW TRI

Even though for almost 62% times the Nifty 100 Equal Weight TRI outperformed the Nifty 50 and 51% times with Nifty 100, it is not at higher risk.

The risk and volatility can be easily visualized if we graph the 10-year rolling standard deviations or risk of all three.

10 Yrs Rolling Risk Nifty 50 TRI Vs Nifty 100 TRI Vs Nifty 100 EW TRI

It is evident from the above chart that even after holding for more than 10 years, the volatility is higher in the Nifty 100 EW than Nifty 50 and Nifty 100.

Conclusion – As previously stated, while the risk is significantly reduced in Nifty 50 EW compared to Nifty 50, this does not hold true for other indices. This observation has also been confirmed in the case of Nifty 500 Vs Nifty 500 EW. (Nifty 500 Equal Weight Index Vs Nifty 500 Index – Which Is The Best?). Therefore, I continue to advocate for a straightforward mix of Nifty 50 and Nifty Next 50 or Nifty 100 (if you are willing to decrease the number of funds and accept a higher level of risk than Nifty 50) rather than opting for the Nifty 100 Equal Weight Index.

14 thoughts on “Nifty 100 Index Vs Nifty 100 Equal Weight Index – Which is better?”

  1. I have 50k to invest lumpsum in mutual fund for 25-30 years.

    1.should I invest this as lumpsum in which fund?

    2. Or is it advisable to put in balance advantage fund as a lumpsum and do a monthly stp 500 to any equity fund?

    Pls advise

    Thanks

    1. Dear Husain,
      Hard to say blidnly without knowing your risk appetite, current assets and their asset allocation. However, if the goal is long term, then first do the proper asset allocaiton between equity to debt. After that, equity part can be either lump sum (if you are comfortable) or stagger it to few months like 6-12 months.

  2. Sir could you please do a comprehensive review of the Nifty MidSmallcap400 Momentum Quality 100 Index ????

    1. Dear Kuldeep,
      Do you need that category? If so, then let me know the logic to add to your portfolio.

  3. Dear Basu Sir,

    Can you please provide an alternative fund for Parag Parikh Flexi Cap Fund? It does not provide good returns in recent years when compared to other Flexi cap funds.
    The AUM is also very high.
    Can we use Nifty 500 Value 50 Index Fund and Nifty 500 Momentum 50 Index Funds instead of Active Flexi Cap Funds?
    Can you please provide in depth analysis on Value and Momentum strategies?

    1. Dear Rajan,
      As Parag Parikh Flexi Cap Fund is an active fund, fund underperformance is the universal truth you have to accept. If you can’t digest this (for that matter any active funds underperformance), then stick to Nifty 100 or you can addit NiftyMidcap 250 along with Nifty 100. These two categories are enough and create well diversified portfolio.
      Personally I suggest adding those many stocks hardly benefit you (Nifty 500).

      1. Thank you for your valuable information. I have already HDFC Sensex and UTI Nifty Next 50. Now I will add Nifty 150 Midcap index instead of that active Flexi Cap fund. 100 % passive index fund portfolios.
        Recently I read the 80/20 book. The author mentioned that do not spend too much time on funds. Invest on passive index funds only.
        One more suggestion, the Parag Parikh Flexi Cap Fund previously invested 35% on US stocks.
        Should I have 10% NASDAQ 100 index fund in my portfolio or altogether avoid Global funds?

        1. Dear Rajan,
          How much the Parag Parikh Flexi Cap Fund’s gloabl exposure impacts to your OVERALL portfolio matters. Dump such gimmicks and stick to simplicity.

  4. Arbab Sikander

    Thanks for detail analysis, i shall be happy if you can put the tables contain different index rerun in different duration with the actual percentage.

    1. Dear Arbab,
      As the data I hae considered for analysis is too much, it is hard and useless also to show it in table format.

  5. Anil Goud Polagani

    Thanks Basu for your insights… How about Nifty 50/Sensex vs Nifty Large Mid-cap 250… Please share your insights.

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