Nifty50 + Nifty Next50: No-brainer guide for long-term wealth creation

In a market flooded with countless investment options and complex strategies, sometimes the most effective approach is also the simplest. According to Anil Ghelani, CFA and Head of Passive Investments at DSP Mutual Fund, investors looking for long-term wealth creation need only consider a straightforward combination: Nifty 50 and Nifty Next 50 funds.

"These two indices offer a good mix of stability and growth," explains Ghelani, highlighting how the Nifty 50 provides exposure to established sector leaders that have weathered multiple business cycles, while the Nifty Next 50 captures the next generation of potential market leaders across diverse economic sectors.

Edited excerpts from a chat:

As the Indian market matures, we are seeing a number of new products, categories, and investment options. But has this created a ‘problem of plenty’? Can passive investing help solve this?
The most important financial goals are usually common — for most of us, they are aligned with the happiness of the family, a better life for children, or starting or expanding a business/profession. Yet, many of us often get preoccupied with the wrong priorities — like increasing the number of funds or chasing the next fancy investment product.

Instead, a better approach could be to keep it simple and just aim to achieve our financial goals with a reasonable degree of certainty. So, with that approach in mind, yes — most certainly, passive investing can be considered a very effective solution to the potential confusion created by the growing number of investment products. Passive funds simplify the journey by providing low-cost, transparent, and relatively easy-to-understand exposure to markets, without the human bias of a fund manager. This reduces the need to constantly analyse sectors, stocks, or fund manager performance. So, passive investment funds like ETFs and index funds can offer a simpler and more disciplined approach that helps you stay invested without overthinking.

One common no-brainer strategy is investing in Nifty 50 and Nifty Next 50 ETFs or funds. Is this effective for those looking for simplicity?
These two indices offer a good mix of stability and growth. The companies in the Nifty 50 Index give exposure to sector-leading firms that have navigated multiple business cycles. On the other hand, companies in the Nifty Next 50 Index, while mainly large-cap stocks, often include the next generation of potential leaders from a wider range of sectors that are key economic drivers. So yes, if you are a long-term investor seeking simplicity and efficiency, I agree with the popular recommendation of combining Nifty 50 and Nifty Next 50. This can form the core of your portfolio, without the need for frequent changes or monitoring. Similarly, we could also consider the BSE Sensex Index and BSE Sensex Next 30 Index.

Are we finally at a tipping point in India where passive investing becomes the default, not the alternative?
Yes, awareness of passive funds has surely reached a tipping point in India. But I strongly believe that in decision-making, “AND” is always more powerful than “OR.” So why should one be the default? In my view, a better outcome is to have passive funds as part of a core allocation and other products like active funds or AIFs as part of a satellite allocation. You may get better risk-adjusted returns by having a passive core portfolio delivering market returns, and a satellite portfolio attempting to generate excess returns beyond the broader market.

While SIP is often called the wisest way to invest, is it especially relevant for passive funds? Does lump-sum investing make sense in passives?
SIPs and passive funds are a natural fit. Systematic investing helps manage volatility and builds discipline, while passive funds lower costs and avoid selection bias. That said, lump-sum investments in passive funds are also very useful — especially during market dips or for long-term goals. Another important use case is when you believe a certain market segment or sector is undervalued. For example, if you feel defensive sectors like healthcare or IT are relatively undervalued today and have growth potential, then lump-sum allocations to an index fund or ETF focused on that sector may be a good decision.

There have been reports of increased ETF buying during sharp market falls. Can ETFs serve as trading products during such times?
Yes. When markets fall sharply, ETF volumes on NSE and BSE often spike. This reflects long-term investors finding corrections to be attractive entry points. One of the key advantages of ETFs is that, rather than picking a few stocks which could go right or wrong, you can buy a broad-based ETF and participate in the market's recovery. So, if you’re a well-informed investor comfortable trading on the exchange, ETFs can be effective trading tools during short-term dips.

We spoke about how passives can simplify investing, but the market is now flooded with thematic indices. How do you see this trend evolving?
Every afternoon I go to my cafeteria and have the standard thali — simple chapati, sabzi, dal, and chawal. But once a quarter, after our rebalance trades are done, I like to enjoy fancy Italian food with the team — maybe with some dessert too. In my view, it's always good to have options — both in the cafeteria and in investing. As our markets evolve, we’ll see more index funds and ETFs that offer exposure to narrow segments, sectors, or niche themes. Many investors will still stick to simple core products, but such thematic products must be available for those who want them.

What’s your outlook on new product launches — will we see more thematic or factor-based ETFs, or will broad indices still dominate?
Yes, we’ll see both. Certain investors or advisors will want products targeting specific sectors or themes for portfolio allocation. There will also be packaged products for DIY investors. While broad-market funds will continue to dominate AUM, smart beta and sectoral funds will persist — albeit with smaller AUM. To offer context, in the U.S., as of December 2024, smart beta funds comprised about 13% of total equity passive fund AUM.