Angel One Nifty Total Market ETF vs. Nifty 500 ETF: Is the Extra Coverage Worth It?

ETFs have become increasingly popular among Indian investors, with AUM exceeding ₹5 lakh crore as of 2024. Their rising adoption is fueled by high liquidity, transparency, and lower costs than actively managed mutual funds.

Angel One Mutual Fund has introduced the Nifty Total Market ETF and Nifty Total Market Index Fund, both tracking the Nifty Total Market Index. This raises an important question for investors: Is the broader coverage of the Nifty Total Market ETF worth it, or does the Nifty 500 ETF offer sufficient diversification?

Both indices follow a free-float market capitalisation methodology and have similar sectoral compositions, with financial services as the dominant sector. However, the Nifty Total Market Index includes microcap stocks, which slightly enhance returns but also increase volatility.

Nifty Total Market ETF

Until recently, there was no ETF tracking the Nifty Total Market Index, which includes 750 stocks across large-cap, mid-cap, small-cap, and micro-cap segments. This makes it one of the most diversified ETFs in India, representing nearly the entire listed equity market.

Angel One Mutual Fund has introduced 2 new funds benchmarked to the Nifty Total Market TRI. The New Fund Offer (NFO) runs from February 10 to February 21, 2025, offering investors a chance to invest in a broad-market index.

• Angel One Nifty Total Market ETF
• Angel One Nifty Total Market Index Fund

Nifty 500

The Nifty 500 Index is a broad-market benchmark that represents the top 500 companies listed on the National Stock Exchange (NSE). It covers large-cap, mid-cap, and small-cap stocks, accounting for approximately 94% of the total market capitalisation of NSE-listed companies. This makes it one of the most comprehensive indices for tracking the performance of the Indian equity market. 

The index is well-diversified across sectors, with financials holding the largest weight (~29%), followed by information technology (~12%), energy (~10%), and consumer goods & services (~9%). Some of its top constituents include HDFC Bank, Reliance Industries, TCS, ICICI Bank, and Infosys.

Overall, the Nifty 500 serves as an excellent benchmark for passive investors seeking broad-market exposure, offering stability from large-cap stocks and growth opportunities from smaller companies.

Nifty Total Market Index vs Nifty 500 Index

Key Differences

1. Stock Universe: The Nifty Total Market Index includes microcap stocks, while the Nifty 500 does not.
2. Broader Market Representation: The Nifty Total Market Index covers a more comprehensive range of stocks (750 vs. 500).
3. Returns: The Nifty Total Market Index has slightly higher long-term returns than the Nifty 500.
4. Volatility: Standard deviation and beta are slightly higher in the Nifty Total Market Index, indicating marginally higher risk.

Is the Extra Coverage Justified? Weighing the Cost vs. Diversification

While the Nifty Total Market ETF provides broader market exposure, the actual marginal benefit over the Nifty 500 ETF is limited. Here are key considerations:

• Cost Consideration: The expense ratio of the Nifty Total Market ETF might be slightly higher due to its larger stock universe. Investors must evaluate if this additional cost is justified by marginally higher returns.
• Diversification vs. Impact on Returns: While adding microcap stocks theoretically increases diversification, historical data suggests only a slight increase in long-term returns.
• Risk Factor: Exposure to microcaps leads to higher volatility, which may not be suitable for risk-averse investors.

Who should invest?

• Investors seeking maximum diversification, including microcaps, may prefer the Total Market ETF.
• Investors comfortable with large & mid-cap exposure might find the Nifty 500 ETF sufficient, with slightly lower volatility.

Ultimately, the decision depends on an investor’s risk appetite and preference for extra diversification vs. stability.

Conclusion

While the Nifty Total Market ETF offers broader market exposure and slightly higher long-term returns, the marginal benefit over the Nifty 500 ETF is limited.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.

Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.