Nippon India Mutual Fund has launched an open-ended scheme, Nippon India Nifty 500 Equal Weight Index Fund, replicating Nifty 500 Equal Weight Index. The fund is a differentiated offering that seeks to provide investors with exposure to a diversified basket of 500 companies, with each stock having equal weight in the portfolio, Nippon Life India Asset Management Limited (NAM India) said in a statement. The fund's investment approach leads to lower concentration risk by not favoring large-cap stocks. Who should invest in Nippon India Nifty 500 Equal Weight Index Fund? This fund is ideal for investors seeking balanced market exposure and potential growth from mid-cap and small-cap stocks, says Sidhavelayutham M, CEO & Founder of Aliceblue. He, however, cautions that the fund may underperform during periods when large-cap stocks dominate. Also read: Mutual Funds: Top 5 large cap funds with over 20% annual returns in 5 years The Nifty 500 Equal Weight Index Fund suits investors seeking broad market exposure with a more balanced risk profile. It is ideal for those who prefer diversification across large-cap, mid-cap, and small-cap stocks, reducing the concentration risk associated with heavily weighted large-cap stocks, he opines. "While it offers lower volatility than a market-cap-weighted index, it may still experience fluctuations, making it more appropriate for investors with a moderate risk tolerance rather than conservative investors who typically prioritise capital preservation and stability over growth." Nippon India Nifty 500 Equal Weight Index Fund tax implications Tax implications are similar to other equity funds, with short-term gains taxed at 15% and long-term gains above Rs 1 lakh at 10%, adds Sidhavelayutham M. "This fund could be a good fit for long-term investors with a moderate risk appetite." What are the potential benefits of investing in the Nifty 500 Equal Weight Index Fund compared to a traditional large-cap fund? Investing in the Nifty 500 Equal Weight Index Fund offers potential benefits of greater diversification and reduced concentration risk compared to a large-cap fund, Sidhavelayutham M noted. Since the fund gives equal weight to all 500 stocks, it provides broader exposure across different market segments, including mid-cap and small-cap stocks, rather than heavily relying on large-cap companies, according to him. Also read: Mutual Fund NFOs: Tata, Groww, Franklin, ITI among 10 schemes opening this week | Check issue dates, other details "This can lead to more balanced returns, as a few large-cap stocks don't dominate the performance. Additionally, the equal-weight approach may enhance the potential for capturing growth opportunities across a wider range of companies, particularly in a market where smaller stocks outperform." What is the main difference between the Nifty 500 Equal Weight Index and the Nifty 500 Index regarding risk and return? The Nifty 500 Index is market-capitalization weighted, meaning larger companies significantly influence the index's performance. This results in higher concentration risk, as the performance is heavily driven by a few large-cap stocks, leading to potential higher returns but also increased volatility. In contrast, the Nifty 500 Equal Weight Index gives each of the 500 stocks an equal weight, which reduces concentration risk and leads to a more diversified portfolio. This equal weighting generally results in lower volatility, as mid-cap and small-cap stocks contribute equally to the index's performance, though it may also result in lower returns during periods when large-cap stocks outperform.
