For investors building a long-term equity portfolio, choosing an index fund is often treated as a question of which index to track. But there is another consideration that can matter just as much — how much control you actually want over the portfolio’s risk and allocation.
For instance, the Nifty 100 offers exposure to the 100 largest companies in the Nifty 500 by full market capitalisation. It effectively combines the Nifty 50 and Nifty Next 50 into one portfolio. An alternative is to hold separate Nifty 50 and Nifty Next 50 index funds. Such an approach gives investors the ability to decide how much exposure you want to each segment, depending on your risk appetite and investment objectives.
One index vs two
The Nifty 100 is a free-float market-capitalisation-weighted index. As a result, larger companies account for a greater share of the portfolio. As of September 30, 2026, financial services accounted for 33.70 per cent of the Nifty 100, while its largest individual constituents included HDFC Bank at 8.41 per cent, ICICI Bank at 7.34 per cent, and Reliance Industries at 6.15 per cent.
Separately, the Nifty 50, which forms the core of the Nifty 100, had an even higher 37.45 per cent allocation to financial services in the same timeframe. The Nifty Next 50, meanwhile, had 17.65 per cent in financial services, with larger allocations to capital goods, automobiles, power and healthcare.
This distinction is important because investors who buy a Nifty 100 fund accept the index’s existing allocation. Those choosing two separate funds can decide how much of their portfolio should be allocated to each segment.
Risk appetite
Consider two investors with the same investment horizon but different tolerance for volatility. An investor seeking a relatively more established large-cap exposure could choose to allocate a greater portion to a Nifty 50 index fund. Another investor who is comfortable with greater fluctuations could increase the allocation to the Nifty Next 50.
For example, a 70:30 allocation between Nifty 50 and Nifty Next 50 would create a different portfolio from a 50:50 allocation. A more aggressive investor could choose to increase the Next 50 component further. These are illustrative allocations, not prescribed asset-allocation recommendations.
The reason for making this distinction becomes clearer when volatility is considered. Over the one-year period, as of September 30, 2026, the Nifty Next 50 recorded annualised volatility of 17.08 per cent, compared with 13.42 per cent for the Nifty 50. This indicates that the Next 50 experienced wider fluctuations during the period.
For investors comfortable with these fluctuations, holding Nifty 50 and Nifty Next 50 funds separately can provide greater control over how much volatility they want to take on. That does not mean higher volatility automatically translates into higher returns. Rather, it highlights why the allocation between the two indices can be relevant for an investor’s risk profile.
Being able to rebalance
Another difference between the two approaches is control over rebalancing.
A Nifty 100 fund follows the index’s market-capitalisation-based composition. An investor cannot independently decide to increase the allocation to the Nifty Next 50 when that segment falls sharply, without making a separate investment elsewhere. With two funds, however, an investor can establish a target allocation and periodically rebalance towards it.
Suppose an investor starts with a 70:30 Nifty 50 and Nifty Next 50 allocation. If a sharp correction causes the Next 50 portion to fall to 25 per cent of the portfolio, the investor could direct new investments towards the Next 50 or rebalance existing holdings to restore the target allocation, provided this remains consistent with their risk tolerance and financial plan.
The same principle can work in reverse after a strong rise. Rebalancing can prevent one segment from becoming a disproportionately large part of the portfolio simply because it has performed strongly.
Sector exposure
Separating the two indices also makes their different sector profiles more visible. As of September 30, 2026, financial services represented 37.45 per cent of the Nifty 50, compared with 17.65 per cent in the Nifty Next 50. The Next 50 had 20.25 per cent in capital goods, 9.76 per cent in automobiles and auto components, 9.46 per cent in power and 8.91 per cent in healthcare.
The Nifty 100, by comparison, had 33.70 per cent in financial services, 8.83 per cent in oil, gas and consumable fuels, 7.24 per cent in automobiles and auto components and 6.72 per cent in information technology.
Therefore, combining Nifty 50 and Nifty Next 50 separately can allow an investor to deliberately change the balance between established large-cap exposure and sectors that have a larger representation in the Next 50. It is not simply a question of adding more companies; it can also alter the portfolio’s sector mix.
Which to choose?
A Nifty 100 index fund offers a straightforward way to obtain exposure to the top 100 companies without requiring the investor to decide how much should go into the Nifty 50 and Nifty Next 50. Holding the two indices separately introduces another layer of decision-making. In return, investors can set their own allocation, rebalance it over time and adjust their exposure according to their tolerance for volatility.
For an investor who prefers simplicity, a single broad-market index may be sufficient. For someone who wants greater control over the balance between the established Nifty 50 and the more volatile Nifty Next 50, separate index funds provide greater flexibility.
The writer is principal - investment strategy, ICICI Prudential AMC