What is the Nifty Large Midcap 250 Index & Why Should You Invest?

A curious incident at a family dinner table serves as a fitting introduction to the question of whether the Nifty Large Midcap 250 Index is the best way to invest. A relative passionately argued that investing in large-cap stocks ensures stability, while another advocated for mid-cap investments for higher returns. The debate was heated until someone exclaimed, “Why not both?” This simple yet profound question encapsulates the essence of the Nifty Large Midcap 250 Index, an innovative tool designed to combine the strengths of both large-cap and mid-cap stocks.

For Indian investors seeking a balanced equity portfolio, this index presents an intriguing proposition. It offers exposure to the stability of large-cap stocks while benefiting from the growth potential of mid-caps—all without the hassle of managing two separate funds. Let us delve deeper into whether the Nifty Large Midcap 250 deserves a place in your investment strategy.

Decoding the Nifty Large Midcap 250 Index

The Nifty Large Midcap 250 Index is a hybrid index that blends the top 100 stocks from the Nifty 100 (large caps) with 150 stocks from the Nifty Midcap 150 (mid-caps)[1]. What sets it apart is its equal allocation of 50% weight to large-cap stocks and 50% to mid-caps. This differs significantly from indices constructed based on free-float market capitalisation, where large caps dominate with an 80% weightage, leaving only 20% for mid-caps. For example, ABC Bank constitutes 5.6% of the Nifty Large Midcap 250 Index, compared to the 9.3% it would hold in a free-float market cap-based index. This unique weighting ensures a more balanced exposure to both segments, providing diversification and reducing concentration risk.

Performance of the index

To gauge the Nifty Large Midcap 250 Index performance, historical rolling returns over 3-year, 5-year, and 7-year periods were compared with other benchmarks like the Nifty 100, Nifty Midcap 150, and active large and mid-cap funds.

The data reveals that the Nifty Large Midcap 250 TRI delivers steady, competitive returns over the long term. While its 7-year performance lags slightly behind mid-cap-centric indices, its balanced exposure ensures it outpaces large-cap-heavy indices. Therefore, for long-term investors, the Nifty Large Midcap 250 TRI offers an excellent middle ground—consistent returns with relatively low volatility, which we will explore next.

Volatility as a factor

Volatility is an essential factor to consider before investing. The standard deviation of rolling returns indicates the stability of an index. Lower volatility implies more predictable performance, a desirable trait for long-term investors.

[1] https://www.etmoney.com/learn/mutual-funds/nifty-largemidcap-250-index-the-best-way-to-invest/

The Nifty Large Midcap 250 Index ranks second in terms of volatility, making it less risky than mid-cap-dominant indices. Its balanced structure ensures smoother performance and stability. This stability makes it an attractive option for investors seeking to minimise risk without compromising on returns.

Risk-adjusted returns of the index

Risk-adjusted returns are crucial for evaluating how much return an investment provides for every unit of risk taken. In this analysis, we compare the Nifty Large Midcap 250 Index against other major indices by calculating the ratio of average rolling returns to standard deviation. This helps assess the efficiency of the index in generating returns relative to the level of risk involved.

Looking at the data, the Nifty 100 index shows solid returns with a risk-adjusted ratio of 2.70 over 3 years, 3.71 over 5 years, and 7.71 over 7 years. The Nifty Midcap 150 index, while showing good growth potential, has lower risk-adjusted ratios of 1.86, 2.85, and 8.14 over the same periods. The Nifty Large Midcap 250, with a balanced mix of large and mid-cap stocks, presents a favourable risk-adjusted performance of 2.24, 3.29, and 8.31 across 3, 5, and 7 years, respectively. These figures indicate that the Nifty Large Midcap 250 offers a solid risk-return balance, making it an efficient investment choice for those seeking a blend of stability and growth.

The Nifty Large Midcap 250 TRI consistently ranks second across all time frames, offering an appealing combination of stable returns and controlled risk. This makes it an excellent choice for those who prioritise both growth and safety.

Investment options – mutual funds and ETFs

Investing in the Nifty Large Midcap 250 Index is convenient through products like the Nifty Large Midcap 250 ETF. Exchange-Traded Funds (ETFs) provide low-cost exposure to the index, making them ideal for cost-conscious investors. Additionally, combining the Nifty Large Midcap 250 Index with a disciplined approach like a Systematic Investment Plan (SIP) can amplify its potential. which helps estimate investment return.

The Nifty Large Midcap 250 Index is an innovative and balanced approach to equity investing. Its equal allocation to large and mid-cap stocks provides both stability and growth,. Whether you are a seasoned investor or just starting your journey, the Nifty Large Midcap 250 Index chart offers a compelling visualisation of its consistent performance. It addresses the need for diversification and eliminates the hassle of rebalancing multiple funds, making it a convenient and efficient choice.

While no investment is entirely risk-free, the Nifty Large Midcap 250 strikes an admirable balance between returns and risk, proving to be a valuable addition to any portfolio. With long-term potential, robust historical performance, and accessibility through ETFs and mutual funds, it might just be the best way to invest for a well-rounded portfolio.

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