Equal-weight Nifty funds beat benchmarks in 2026's flat market

Over rolling seven-year periods, the Nifty 100 Equal Weight and Nifty 500 Equal Weight have beaten their parents by about half a percentage point a year on average. The gap is larger for narrower baskets. The Nifty Top 10 Equal Weight beat the Nifty 50 benchmark by about 2 percentage points a year in annualized terms over rolling seven-year windows.

Different indices, different problems

"A Nifty 50-based equal-weight strategy gives you basic exposure to the market while solving for the concentration that comes with a regular, market-cap-weighted Nifty 50, where some stocks or sectors typically carry higher weights," said Anil Ghelani, head of passive investments and products at DSP Mutual Fund.

"In the narrower indices, the Top 10, 15 or 20, you get a concentrated portfolio, but equal weight ensures no single stock or sector dominates. It is more like a focused portfolio of the largest Indian companies."

The universe matters most, said Siddharth Srivastava, head of ETF products and fund manager at Mirae Asset Mutual Fund.

"Depending on the index it is based on, an equal weight index can have very different exposure not just to stocks, but also to market cap segments and sectors," he said. "A Nifty 500 equal-weight index will have 50% exposure to the small-cap segment and 30% to mid-cap, while a BSE 200 equal-weight index will have 50% exposure to mid-cap and the rest to large caps."

Investors should first decide which segment they want equal-weight exposure in, Srivastava said, and whether they are comfortable with the changes in sectoral and segment representation that come with it.

Satellite allocation

Investors should also weigh concentration risk, said Pattabiraman. "Some of these portfolios, the narrower indices, can become concentrated. The question worth asking is whether a fund can manage so many stocks well once the asset size of the broader fund grows large." He said investors should look at impact costs, tracking error and, for ETFs, whether the fund trades close to its indicative net asset value.

Most equal-weight funds can work as a satellite allocation, a smaller, diversifying slice held alongside a core portfolio, once regular mutual fund investments are in place, according to Surya Bhatia, a financial adviser at Asset Managers.

"Except for Nifty 50 equal-weight, which is a pure large-cap focused strategy, several of these equal-weight indices are catering to certain specific segments of the market. Hence, these should be considered part of the satellite allocation," Bhatia said.