What is an Equal Weighted Index & how do you invest in it?
We speak of the Nifty and the Sensex and the Dow Jones Indexes, but what are they?
A stock market index is a “barometer” of the market - a set of stocks that, when put together, give you a better understanding of how the market as a whole is moving. In other words, an Index is a way to get an insight on how the overall market is performing....
The Performance of an Equal Weighted Nifty Index
In April 2017, India Index Services & Products – who maintains Indices at the NSE, launched the Nifty 50 Equal Weighted Index. The Index has the same stocks as of Nifty 50. But all stocks in the Index carry equal weights rather than being market-cap based.
Stocks will move every day, so the index is rebalanced every three months to bring everything back to equal weights...
Understanding the risk of an Equal Weighted Index
Since the Index comprises the same set of stocks that are part of Nifty 50, there isn’t too much of a difference between risk profiles of Equal Weighted versus the Market Cap Weighted Index.
The correlation of weekly returns is nearly 96%.
A significant change between Market Cap Weighted Nifty 50 and Equal Weight Nifty 50 is the total free float market capitalization…
Will an Equal Weighted Index outperform other funds?
WIn 1976, when the first Index fund was created by The Vanguard Group, it was referred to as “Bogle’s Folly”. After all, who would rather not pay a higher expense ratio for the ability to beat the markets that Mutual Funds promised versus just performing in line with the markets as the Index funds promised
40 Years later, the stand of Vanguard founder, John C. Bogle has been vindicated like never before..