Nifty50 ETF: A low-cost fund to invest in the best bluechips

For many investors, choosing the best set of stocks or funds can be challenging. Whether they be reasonably experienced investors or newbies, when markets are volatile like in the past five months, decision-making is not simple.

Taking the passive route is advisable, especially for new investors, as they get to replicate a benchmark index.

Among the standard indices, the most popular benchmark is the Nifty 50, which is a diversified basket of the 50 largest stocks by market capitalization.


For investors looking to invest in the Nifty 50, taking the ETF route is ideal given the low cost, absence of fund manager risk, high liquidity and ease of investment.

From a valuation perspective, the correction over the past few months has reduced the price earnings (PE) multiples for the Nifty 50. From a PE of 23 times in September 2024, the multiple for the index has come down to 21.3 times as of January 2025 according to NSE data. This fall makes a case for entry at lower valuation as well.

A diversified basket

The Nifty 50 offers an option to invest in 50 companies spread over as many as 15 sectors, this offering a well-diversified benchmark to invest in. It is a key barometer for measuring the equity market’s movement.

As the stock selection is based on the index’s criteria, you get a passive and unbiased as well as rule-based set of stocks to add to your portfolio.

Given that large cap funds should be a key part of your portfolio over the long term, given their steady performance, healthy cashflows, profitability and economic moats, the Nifty 50 index would be the one of best options for retail investors.

The index represents about 54% of the free float market capitalization of the stocks listed on NSE as on September 30, 2024.

Taking the ETF route

Investing in the Nifty 50 is best done via the ETF (exchange traded fund) route as there are many advantages of doing so.

One, it is a low-cost investment. Nifty 50 ETFs come with low expense ratios making them extremely cost-efficient investments.

Two, there is no fund manager risk, given the passive nature of the product. The index is balanced periodically for stock and sector weightages as well as fresh inclusions or exclusions.

Three, investments can be done with very small amounts. Buying individual stocks can be expensive from the Nifty basket as some of them may cost thousands of rupees per share. With the Nifty 50 ETF, you can invest in the entire 50-stock basket with just a few hundred rupees. You can also buy periodically, to create a SIP-like structure. By buying at all market levels, you can average the cost of purchase.

Four, investments are quite liquid as units of the ETF are traded with high volumes in both the stock exchanges. Therefore, buying and selling units becomes simple for investors as they only need demat and trading accounts for the same.

(Author of the article - Chintan Haria is Principal - Investment Strategy at ICICI Prudential AMC)

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)