India’s first ETF based on Nifty 50 Equal Weight Index launched – Check how it differs

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October 19, 2021 10:51 AM

The Nifty 50 Equal Weighted Index has outperformed the Nifty 50 index by 2.02% CAGR since inception and has outperformed the Nifty 50 Index in 12 out of 21 calendar years.

Nifty 50 Vs Nifty 50 Equal Weight, DSP ETF, equal weight, stocks, investments, funds,Nifty 50 Equal Weighted Index gives all companies in the index an equal chance to contribute to returns rather than being overly dependent on the top 10.

DSP Investment Managers has announced the launch of DSP Nifty 50 Equal Weight ETF, India’s first Exchange Traded Fund based on the Nifty 50 Equal Weight Index.

The New Fund Offer opened for subscription on October 18th and will close on October 29th, after which it can be purchased and sold on the exchanges. The DSP Equal Nifty 50 ETF aims to provide better sector and stock diversification compared to the Nifty 50 Index.

Nifty 50 Vs Nifty 50 Equal Weight

In Nifty 50, the stock weights are determined by market cap and weightage changes based on market movement. The returns are skewed towards stocks with highest weight.
In Nifty 50 Equal Weight, equal weights to each stock and weight of each stock is reset to equal weight every quarter. Every stock has equal opportunity to perform.

What is Equal Weight Index

In an equal weight index, each stock in it gets equal weight. Thus, if the strategy is applied to Nifty 50, the equal weighted index will own the same 50 companies as Nifty 50 and will have 2% weight to each company unlike the current market cap weight design where some stocks get large weights like 9-10% and many stocks in the lower tail get only 0.3%. This gives all companies in the index an equal chance to contribute to returns rather than being overly dependent on the top 10.

Performance against Nifty 50

The Nifty 50 Equal Weighted Index has outperformed the Nifty 50 index by 2.02% CAGR since inception and has outperformed the Nifty 50 Index in 12 out of 21 calendar years.

Advantages

The DSP Equal Nifty 50 ETF follows two core investment principles – investing in sector leaders that can ride through market cycles along with better diversification across companies and sectors with equal stock weights that offer lower stock specific risks and lower sector concentration compared to the Nifty. Apart from a diversified portfolio at a relatively lower cost, the Nifty 50 Equal Weight ETF offers the advantage of simplicity of buying and real time trading.

The Equal Weight Index gets rebalanced on a quarterly basis. Owing to this quarterly rebalancing method, an equal weight portfolio has a built-in profit booking mechanism, in effect buying the underperformers at “low” and selling the outperformers at “high”.

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