Category : New to Investing September 19, 20255 minutes read
The Nifty 100 is one of the most widely followed indices in India. So what is the Nifty 100 index? It represents the top 100 companies listed on the National Stock Exchange (NSE) in India. Nifty 100 stocks are identified based on free float market capitalisation and belong to various different sectors. As a result, investors may benefit from the diversification benefits of Nifty 100 index funds and stocks. Moreover, Nifty 100 returns may be significant in the long-term, with schemes and stocks offering relative liquidity. However, Nifty 100 investments may be vulnerable to concentration risk, tracking errors, and stock overlap.
The Nifty 100 index in India represents the top 100 companies on the National Stock Exchange. Companies in the Nifty 100 index are identified based on their market capitalisation which is calculated using free float market capitalisation. The Nifty 100 index is used for benchmarking fund portfolios, structured products, and tracking of ETFs and index funds. Stocks present in the Nifty 50 index and Nifty next 50 index comprise the Nifty 100 index.
In this guide, we will discuss the meaning of the Nifty 100 index in detail. We will also explore the potential benefits of investing in Nifty 100 stocks including liquidity, portfolio diversification and long-term returns. We will also explore the drawbacks of Nifty 100 investments including tracking errors, concentration risk, and potential stock overlap. Lastly, we will explore the different means to invest in the Nifty 100 index, including Nifty 100 index funds, Nifty 100 ETFs, and stocks.
The top 100 companies in the National Stock Exchange of India make up the Nifty 100 index. These stocks are identified based on their free float market capitalisation and the index is rebalanced semi-annually on January 31 and July 31.
Companies belonging to different sectors of the economy are present in the Nifty 100 index, and as a result the index generally reflects the performance and health of the market as a whole. Financial services, Information Technology, Oil and Gas, Healthcare, Automobiles, etc., are some of the represented sectors.
The Nifty 100 index and Nifty 100 index funds are market capitalisation-weighted, which means that companies with higher market capitalisations have a greater impact on the index’s value. Now that we understand what the Nifty 100 index is, let’s look at the selection criteria for stocks in this index. The selection criteria is mandated by NSE Indices Limited is:
- Companies must form part of Nifty 500.
- Securities must have a full market capitalisation among top 90 ranking companies.
- Securities will be included if full market capitalisation is 1.50 times of the last constituent in Nifty 100.
- Securities will be excluded if rank based on full market capitalisation falls below 110 or if constituents get excluded from Nifty 500.
- The Company should have a minimum listing history of 1 month.
Investing in Nifty 100 shares can have several benefits for investors including portfolio diversification, potential long-term returns, and benefits of liquidity.
Portfolio Diversification
Several different sectors are represented in the Nifty 100 index including financial services, healthcare, consumer durables, oil, gas, Information Technology (IT), and automobiles. This diversification across sectors enables investors to potentially reduce risk. Poor performance from any one sector due to external factors may be reduced.
Long Term Investment
Nifty 100 index funds and stocks are generally suitable for investors with a long-term investment horizon. All equities, including Nifty 100 shares are vulnerable to market volatility. By investing over the long-term, investors may offset any short-term effects of volatility. Nifty 100 returns may be significant in the long-run.
Liquidity
Nifty 100 stocks are generally liquid as they are required to meet a specific liquidity criteria before being part of the index. These stocks have high trading volumes, making it easy for investors to buy or sell without significant price impact.
Unlock the benefits of investing in stocks present in the Nifty 100 index with Bandhan Nifty 100 index fund. Start your investment journey today!
Investing in Nifty 100 shares offers diversification across sectors, reducing sector-specific risks. It may suit long-term investors by helping offset short-term market volatility and potentially generating significant returns. These stocks meet strict liquidity criteria, ensuring high trading volumes for easy buying or selling. Overall, Nifty 100 shares may provide stability, growth, and liquidity benefits.
To further understand what the Nifty 100 index is, let’s explore its drawbacks. The Nifty 100 index may have certain drawbacks including concentration risk, tracking errors, and potential stock overlap.
Concentration Risk
The market cap of Nifty 100 companies is primarily large cap. While the Nifty 100 index is diversified across sectors, investors do not get exposure to small or mid cap stocks that may have a higher growth potential. As a result, investments in Nifty 100 stocks or Nifty 100 index funds may be subject to concentration risks.
Additionally, Nifty 100 index funds invest primarily in equities. These schemes do not diversify across asset classes such as debt or money market securities. Equity investments, whether through mutual funds or stocks, are inherently riskier and vulnerable to volatility and market fluctuations. Generally, such investments are considered to be high risk or very high risk-return.
Tracking Errors
Tracking errors refer to the difference between the index performance and the returns of the scheme. Index funds are generally subject to tracking errors due to fund fees, portfolio rebalancing, cash holdings, etc. Nifty 100 mutual funds may be subject to tracking errors. Tracking errors may influence the potential returns of Nifty 100 mutual funds.
Stock Overlap
Stock overlap refers to the phenomena when an investor holds multiple investment portfolios or funds hold the same stocks in their holdings. The Nifty 100 index is made up of the Nifty 50 index and the Nifty Next 50 index. Investors who hold investments in stocks belonging to either of these indices or invest in index funds that track these indices may be at the risk of stock overlap. Moreover, holdings of the Nifty 100 index may largely overlap with large cap funds and financial sector funds.
The Nifty 100 index has drawbacks like concentration risk, tracking errors, and stock overlap. It focuses on large-cap stocks, limiting exposure to higher-growth mid and small caps and lacking asset class diversification. Tracking errors may occur in Nifty 100 index funds due to fund fees or portfolio rebalancing, impacting potential returns. Additionally, stock overlap risks arise when holdings in the Nifty 100 index overlap with Nifty 50, Nifty Next 50, or large-cap funds.
Now that we understand the meaning of the Nifty 100 index, its benefits and drawbacks, let’s explore how investors can invest in the Nifty 100 index.
Nifty 100 Index Funds
Investing in Nifty 100 index funds is one of the easiest ways to potentially benefit from Nifty 100 stocks. Nifty 100 index funds aim to track the Nifty 100 index and invest across the index. Investors may gain the benefits of diversification across sectors and companies with professional management. Moreover, as an equity investment, Nifty 100 index fund returns may be significant in the long-run, allowing investors to achieve wealth creation goals. Moreover, as a mutual fund scheme, Nifty 100 mutual funds have the option of investing via Systematic Investment Plans (SIPs). SIPs may help average-out the cost of the investment, giving investors the benefits of Rupee Cost Averaging and compounding overtime. Additionally, index funds generally have lower expense ratios, making them a cost effective option for investors. However, Nifty 100 mutual funds may be vulnerable to tracking errors and market fluctuations.
Nifty 100 ETFs
Nifty 100 Exchange-Traded Funds (ETFs) are similar to index funds; they track the underlying index and aim to replicate its returns. Exchange Traded Funds offer investors the option of intraday trading, giving additional flexibility. However, investors require a DEMAT account to invest in ETFs as they are traded directly on stock exchanges. Moreover, ETFs do not generally have the option of SIPs.
Stocks
Investors can invest in Nifty 100 stocks directly using their DEMAT account. However, individual stock investments may be riskier as they are not diversified. Moreover, stock investments generally require investors to be well-informed about market conditions, making this option risky for beginner investors. However, investors who prefer flexibility in creating their portfolio may choose to invest in stocks.
Invest in Nifty 100 companies through a Systematic Investment Plan (SIP) and gain the potential benefits of Rupee Cost Averaging!
Investors can invest in the Nifty 100 index through index funds, ETFs, or individual stocks. Nifty 100 Index Funds offer diversification, SIP options, and lower costs but may face tracking errors and market risks. Nifty 100 ETFs allow intraday trading for flexibility but require a DEMAT account and lack SIP options. Nifty 100 Stocks enable direct investments via DEMAT accounts but involve higher risks and require market knowledge, making them less suitable for beginners. Each method offers unique benefits based on investor goals and risk appetite.
- The Nifty 100 index is one of the most followed indices in India. But what is the Nifty 100 index?
- The Nifty 100 Index represents the top 100 companies on the NSE, based on free float market capitalisation, and includes stocks from both the Nifty 50 and Nifty Next 50 indices.
- It covers various sectors, such as financial services, IT, healthcare, and oil & gas, providing broad market representation.
- Investing in the Nifty 100 offers diversification, long-term growth potential, and liquidity, while drawbacks include concentration risk, tracking errors, and stock overlap.
- Investors can access the Nifty 100 through index funds, ETFs, or direct stock investments, with funds offering professional management and ETFs providing intraday trading flexibility.
