Nifty Total Market Index vs Nifty 50: A Comparative Analysis

In this blog, we’ll compare the Nifty Total Market Index vs the Nifty 50. These indices are important players in the Indian stock market, each having distinctive characteristics and significance. The Nifty 50 reflects 50 major companies listed on the National Stock Exchange (NSE), whereas the Nifty Total Market Index comprises all NSE-listed stocks. By comparing these indices, we will look at their differences and consequences for investors. Let’s proceed further into the analysis to understand better the different roles they play in the stock market.

Understanding the Basics

The Nifty 50, sometimes known as the Nifty, is India’s flagship stock market index, containing 50 large-cap stocks listed on the National Stock Exchange (NSE). In contrast, the Nifty Total Market Index (NTM) uses a broader approach, including all stocks listed on the NSE, not just the top 50. This widened representation provides a broader overview of the Indian stock market, including large, mid, and small-cap companies.

Nifty Total Market Index vs Nifty 50 Index Fund 

Now, let us compare the Nifty 50 Index fund to the Nifty Total Market Index. The Nifty 50 Index Fund, a popular investing alternative, provides exposure to the 50 largest and most liquid shares, making it a largely safe option for investors. However, the Nifty Total Market Index provides a larger diversification throughout the market spectrum, with the potential for higher long-term gains. This diverse access may additionally reduce the risks associated with focused investments.

Over the years, the Nifty 50 and the Nifty Total Market indices have grown impressively. While the Nifty 50 has had an average yearly price gain of 11.55%, the Nifty Total Market has grown by an average of 13.64%. Here’s an overview of their performance:

Components and Constituents

The Nifty 50, an important component of the Indian stock market, consists of the top 50 companies by market capitalisation. The Nifty Total Market Index, on the other hand, is bigger in scope, including the top 750 businesses in the large-cap, mid-cap, and small-cap sections. While the two indices have comparable components, their weightage differs, affecting their unique characteristics.

Let’s look at the top constituents of each index to understand their composition:

Representation and Coverage Comparison

The Nifty 50 represents around 59% of the free float market capitalisation and provides an overview of the market’s heavyweights. The Nifty Total Market Index, which includes the Nifty 500 and Nifty Microcap 250 indices, gives a more comprehensive view of the market. This wider range of stocks translates into more varied sectoral representation, with the NTM index covering more industries than the Nifty 50.

Here’s a look at the sectoral weightage of both indices:

Performance Comparison

1. Constituents Overlap: 

The Nifty 50 and the Nifty Total Market Index both have portfolios that include some of the same organisations. The Nifty 50 index includes the top 50 firms by market capitalisation, while the Nifty Total Market Index includes the top 750 companies. This implies that all of the Nifty 50 companies are also included in the Nifty Total Market Index, but with different weights.

2. Representation:

As of September 29, 2023, the Nifty 50 accounts for about 59% of the total free float market capitalisation of the companies listed on the NSE. The Nifty Total Market Index, on the other hand, is larger in scope, covering all stocks from the Nifty 500 and Nifty Microcap 250 indices. This greater coverage gives a more comprehensive view of the market.

3. Sectoral Diversification:

Financial services and IT account for 33.53% and 13.04% of the Nifty 50’s weightage, respectively. In comparison, the Nifty Total Market Index provides a wider sectoral representation, covering financial services, information technology, oil, gas and consumable fuels, fast-moving consumer goods and others.

Factors to Consider

1. Investment Goals: 

Think carefully about your investment objectives. If you are looking for stability and exposure to high-performing firms, the Nifty 50 may be a better fit. However, if you want broader market exposure across firms of all sizes, the Nifty Total Market Index may be more appropriate.

2. Risk Appetite:

Before making a decision, evaluate your risk tolerance. The Nifty 50, with its emphasis on large-cap firms, is less volatile, making it ideal for conservative investors. In contrast, the Nifty Total Market Index, with its greater coverage, may see more swings but has the potential for bigger gains.

3. Cost Consideration:

Compare the costs of investing in both indexes. While both Nifty 50 Index Funds and Nifty Total Market Index Funds are often low-cost solutions, you should keep in mind any fees or charges that may affect your long-term performance.

4. Historical Performance:

Review the historical performance of each index. Over the last 5 years, the Nifty Total Market Index outperformed the Nifty 50, with an average annual price growth of 16.24% vs 13.95% for the Nifty 50. However, previous achievement is not an indicator of future outcomes, so use this knowledge together with other factors.

5. Index Tracking and Liquidity:

Evaluate the tracking inaccuracy and liquidity of index funds that track these indexes. While the Total market index funds often have minimal tracking errors, you must ensure that the fund you select closely matches the performance of its respective index. Also, assess the fund’s liquidity since you’ll want to be able to buy and sell shares easily.

Conclusion

The Nifty 50 and the Nifty Total Market Index have unique advantages and considerations. The Nifty 50, with its emphasis on stability and exposure to high-performing companies, appeals to conservative investors looking for consistent returns. Whereas the Nifty Total Market Index gives broader market exposure across companies of all sizes, with the potential for higher returns at the cost of more increased volatility. Before you make a decision, carefully review your financial objectives, risk tolerance, and cost considerations. To invest in Nifty 50 or Nifty Total Market Index stocks or ETFs, open a demat account with Angel One today.

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