Nifty 50

NIFTY 50 is owned and run by NSE Indices Limited, previously known as India Index Services & Products Limited. This index was launched on April 22, 1996, with the base year set to 1995 and the base value set to 1,000, which is calculated on a daily basis. Since its inception, the NIFTY 50 price has seen significant growth, breaching the level of 16,000. Now it is one of the most important benchmarks for the Indian stock market.

How Are NIFTY 50 Stocks Selected?

The NIFTY 50 share price is determined by the underlying weighted average of 50 stocks on the basis of free-float market capitalisation. Free float refers to the shares which are readily available to the public for trading and are not held by promoters.

These stocks are chosen from the universe of NIFTY 100 and need to meet the following eligibility criteria:

1. Should be an Indian company registered with the NSE
2. Should be highly liquid, which means its average impact cost should be less than or equal to 0.50% for 90% of the observations for a basket size of ₹10 crore in the past 6 months
3. Should have 100% trading frequency in the past 6 months
4. Should have a free-floating average market capitalisation which is at least 1.5 times greater than the smallest constituent on the index
5. Should have derivative contracts available on NSE

Even companies that issue shares with Differential Voting Rights are eligible to be included in the NIFTY 50 index.

How Is NIFTY 50 Value Calculated?

The Nifty 50 index value is calculated as follows:

Index value = Current market value / (Base Market Capital * Base Index Value)

The formula also takes corporate actions such as mergers, de-listing, restructuring, and spin-offs into consideration. The NIFTY 50 index is reviewed semi-annually based on 6 months’ data ending January and July. The replacement of stocks in NIFTY 50 (if any) is implemented from the last trading day of March and September.

What Are the Benefits of Investing in the NIFTY 50?

• Diversification: The NIFTY 50 is a diversified index, which means that it includes a variety of companies from different sectors of the economy. This helps to reduce the risk of your investment portfolio, as you are not dependent on the performance of a single company or sector.
• Liquidity: The NIFTY 50 is a liquid index, which means that it is easy to buy and sell shares. This is important for investors who want to be able to exit their investment quickly if they need to.
• Potential for growth: The NIFTY 50 has historically grown at a healthy rate, and it is expected to continue to grow in the future. This makes it a good investment for investors who are looking to grow their wealth over the long term.
• Ease of investment: You can invest in the NIFTY 50 through a variety of investment vehicles, including mutual funds. This makes it easy for investors of all levels of experience to get started.
• Low fees: Nifty 50 Index funds that track the NIFTY 50 tend to have low fees, which means that you keep more of your investment returns.

Investing in NIFTY 50 offers the potential for long-term growth, reduced risk through diversification, and a cost-effective way to gain exposure to India’s equity market. However, as with any investment, it is essential for you to assess your investment objective and risk tolerance and consult with a financial advisor before making investment decisions.

How To Invest in NIFTY 50?

There are two ways to invest in NIFTY 50:

• Invest in NIFTY 50 Stocks: You can buy the stocks listed in the NIFTY 50 directly in a percentage that is similar to their weightage in NIFTY 50.
• Invest in Index Mutual Funds: You can also choose mutual funds that track NIFTY 50. According to SEBI guidelines, a Nifty 50 Index 50 must invest at least 95% of the total assets in equity and equity-related securities of the Nifty 50 index. The Nifty 50 Index fund invests in all the companies listed in the Nifty 50 index according to their respective weightage. You can choose a fund house that invests in NIFTY 50 stocks and invest as per your convenience.

Taxation on Nifty 50 Funds

Nifty 50 funds come under a broad category of equity mutual funds. Therefore, the taxation of Nifty 50 funds is the same as the equity mutual funds.

• Long-Term Capital Gain (LTCG) tax: Selling your Nifty 50 index fund units after holding them for 12 months will result in long-term capital gain. You can enjoy tax exemption on LTCG of up to ₹1 lakh in a financial year, while any gains above this limit will be taxed at a flat rate of 10% without indexation benefit.
• Short-Term Capital Gain (STCG) tax: Selling your Nifty 50 index fund units before 12 months of buying them will result in short-term capital gain. The STCG will be taxed at 15%.