After I wrote an article evaluating the Nifty 50 to the Nifty 100, a reader inquired concerning the higher choice between Nifty 100 Index Vs Nifty 100 Equal Weight.
Many index buyers examine between Nifty 50 and Nifty 50 Equal Weight and choose that each one different equal weight indices scale back the danger. Nevertheless, whereas this may occasionally true for the Nifty 50 versus Nifty 50 Equal Weight Index, however not true for different equal weight indices.
Refer my earlier submit – Nifty 50 Index Vs Nifty 100 Index – Which Is Higher?
What’s Nifty 100 Equal Weight Index?
The Nifty 100 Equal Weight Index contains the identical constituents because the Nifty 100 Index (free float market capitalization-based Index). The Nifty 100 tracks the behaviour of a mixed portfolio of two indices viz. Nifty 50 and Nifty Subsequent 50.
Every constituent in Nifty 100 Equal Weight Index is allotted mounted equal weight at every re-balancing.
The bottom date for Nifty 100 Equal Weight Index can be 1st Jan 2003 with a base worth of 1000 like Nifty 100.
Nifty 100 Index Vs Nifty 100 Equal Weight Index – Which is best?
As each the Nifty 100 Index and the Nifty 100 EW Index have a base date of 1st Jan 2003, I’m evaluating the info of Nifty 50 TRI, Nifty 100 TRI, and Nifty 100 EW TRI from the date of 1st Jan 2003. We’ve round 5537 day by day knowledge factors from 1st Jan 2003 to twenty first June 20024.
As traditional, allow us to see the lump sum motion of all three Indices
After conducting an intensive point-to-point evaluation, it turns into evident that Nifty 100 EW outperforms different choices. Nonetheless, it’s essential to think about drawdowns as effectively as a way to absolutely comprehend the related dangers.
Drawdown refers back to the decline within the worth of an funding or portfolio from its peak to its lowest level over a particular interval. It’s a measure of draw back threat, indicating how a lot an investor may doubtlessly lose from the very best level earlier than the worth recovers.
You’ll be able to simply visualize the danger concerned in Nifty 100 Equal Weight Index in comparison with Nifty 50 and Nifty 100.
Allow us to now look into the rolling returns of 1 Yr, 3 Yrs, 5 Yrs, and 10 Yrs.
# 1 12 months Rolling Returns Of Nifty 50 TRI, Nifty 100 TRI and Nifty 100 EW TRI
Although for nearly 51% instances the Nifty 100 Equal Weight TRI outperformed the Nifty 50 and 54% instances with Nifty 100, it’s not at greater threat.
The volatility could be simply visualized if we draw the 1-year rolling normal deviation or rolling threat of all three indices.
The usual deviation quantifies the extent to which returns could differ from the imply return. Primarily, it represents the imply deviation.
The usual deviation is computed utilizing day by day returns and subsequently annualized by multiplying it by the sq. root of the whole buying and selling days (250-252) in a 12 months based mostly on the rolling 12 months one needs to calculate (1 Yr, 3 Yrs, 5 Yrs or 10 Yrs).
In my earlier posts, I’ve avoided conducting this rolling threat calculation. Nevertheless, I imagine it’s essential to current it right here, as it is going to give you a transparent understanding of the danger concerned.
You observed that Nifty 50 and Nifty 100 virtually look equivalent. Nevertheless, simply take a look at the volatility of Nifty 100 EW.
# 3 Years Rolling Returns Of Nifty 50 TRI, Nifty 100 TRI and Nifty 100 EW TRI
Although for nearly 53% instances the Nifty 100 Equal Weight TRI outperformed the Nifty 50 and 52% instances with Nifty 100, it’s not at greater threat.
The chance and volatility could be simply visualized if we graph the 3-year rolling normal deviations or threat of all three.
Right here additionally you may discover the seen greater threat in Nifty 100 EW in comparison with Nifty 50 and Nifty 100.
# 5 Years Rolling Returns Of Nifty 50 TRI, Nifty 100 TRI and Nifty 100 EW TRI
Although for nearly 58% instances the Nifty 100 Equal Weight TRI outperformed the Nifty 50 and 53% instances with Nifty 100, it’s not at greater threat.
The chance and volatility could be simply visualized if we graph the 5-year rolling normal deviations or threat of all three.
No distinction for five years rolling threat to what we have now in contrast for 1 12 months and three years rolling threat.
# 10 Years Rolling Returns Of Nifty 50 TRI, Nifty 100 TRI and Nifty 100 EW TRI
Although for nearly 62% instances the Nifty 100 Equal Weight TRI outperformed the Nifty 50 and 51% instances with Nifty 100, it’s not at greater threat.
The chance and volatility could be simply visualized if we graph the 10-year rolling normal deviations or threat of all three.
It’s evident from the above chart that even after holding for greater than 10 years, the volatility is greater within the Nifty 100 EW than Nifty 50 and Nifty 100.
Conclusion – As beforehand acknowledged, whereas the danger is considerably diminished in Nifty 50 EW in comparison with Nifty 50, this doesn’t maintain true for different indices. This remark has additionally been confirmed within the case of Nifty 500 Vs Nifty 500 EW. (Nifty 500 Equal Weight Index Vs Nifty 500 Index – Which Is The Greatest?). Due to this fact, I proceed to advocate for an easy mixture of Nifty 50 and Nifty Subsequent 50 or Nifty 100 (if you’re keen to lower the variety of funds and settle for a better stage of threat than Nifty 50) fairly than choosing the Nifty 100 Equal Weight Index.