Have you noticed the duel rise the Indian market has witnessed in the last couple of decades? A commendable percentage of Indian households invest in the stock market. Additionally, more new companies are registering with both the Indian stock exchanges.

Hence, to streamline the monitoring process for investors, the shares have been categorised under various Nifty indices listed with the NSE. However, the choice of investment depends absolutely on your strategies and objectives.

However, if you are considering investing in a diverse portfolio like the Nifty 500 or opt for more focused sectors, read this article. Here, we will detail the various aspects of the index mentioned earlier, along with sectoral indices.

Nifty 500

This is the most dominating index of NSE. The index represents about 91.8% of the free float market capitalisation with 500 sizeable companies. It is lauded for its diversity as it is a stock in multiple sectors like financial services, automobiles, pharmaceuticals, etc.

Moreover, this index comprises large, mid and small-cap shares in a proper balance. Hence, investors are usually more inclined to invest in diverse portfolios to mitigate the risk of huge losses.

Sectoral Indices

Besides cumulative indices, there are other sector-specific indices as well. Here, we will elaborate on Nifty Pharma, Infra and commodities. Let us dive into the details without any further ado.

  • Nifty Infra: It comprises sectors like telecom, transportation, energy, etc. The Nifty Infra helps track the price movement of 30 infrastructure-related companies.
  • Nifty Commodities: The index is home to 30 industries from the commodity section. The major sectors contained in Nifty Commodities are petroleum products, cement, power, metal and mining, etc.
  • Nifty Pharma: This sector represents the activities of the pharmaceutical companies. The index deals with 20 handpicked companies.

How To Choose The Appropriate Nifty Index

Now that you have a basic understanding of all the four indices. How do you choose which one is best for you? Below are some factors you must consider before investing your funds.

●       Market Risk

Losses and profits are the flip sides of the stock market investment. Hence, whether you have just stepped into the share market arena or have been in the game for quite some time now, considering the market risk becomes imperative.

As the nifty 500 has many shares, it is less volatile than the sectoral indices. Hence, the former is the best option for those looking for a stable investment. However, the latter can offer you better profits even at the slightest market movements.

●       Growth Opportunity

The growth of an index depends on its percentage of diversity. The more it achieves a harmonious balance between large, mid and small-cap stocks, the better growth opportunity it can offer.

In this regard, the Nifty 500 is an all-encompassing index offering comparatively more growth opportunities. However, the sectoral indices exhibit decent growth potential as they have companies with differing market capitalisation.

●       Liquidity

The sector-specific indices are more liquid since they deal with fewer shares. In comparison, the Nifty 500 is much more extensive and hence offers reduced liquidity to investors.

In simpler terms, indices like Nifty Pharma, Infra, etc., are more appropriate for short-term investments and immediate returns. Nifty 500, on the other hand, is more favourable for future investments. However, the strategy can vary with every investor.

●       Diversification

It is undeniable that the diversification of the Nifty 500 is way more than the sectoral indices. Hence, if you want to invest in an index with maximum diversification, then Nifty 500 is the best choice. However, you can consider sector-specific indices if you are not immensely inclined towards a diverse portfolio.

●       Potential Returns

Lastly, another fundamental factor is the percentage of returns from the indices. This majorly depends on the ongoing contemporary events. For instance, there is a sudden flood. Hence, the sugar industry from the commodity sector is witnessing a sudden rise. In such cases, sectoral indices assure a better return than Nifty 500

Ending Notes

Honestly, there is no stable ‘best index to invest’. The market scenario and the right index to invest are changing. You must keep a close eye to strategise your moves to garner maximum profit. Motilal Oswal’s Research 360 can help you in the process. They render the latest updates and record the minutest market fluctuations.