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Nifty LargeMidcap Index for a blend of stability and high returns. Details here
Nifty 100 ranks high for 3 and 5 years, offering lower risk-adjusted returns. Nifty Mid and Small indices rank low, with Midcap index providing higher returns but also higher risk. Nifty LargeMidcap 250 index consistently ranks 2nd, offering high risk-adjusted returns.
Large companies provide stability, while medium-sized companies can help increase returns in an investment portfolio. Before, if you wanted to invest in both large and medium-sized companies through index funds, it wasn't straightforward. You had to invest in separate funds for large companies and medium-sized ones, and then adjust your investments regularly to keep the right balance. This adjustment could also lead to tax implications.
But now, there's a solution with the Nifty LargeMidcap 250 index. This index lets you invest in both large and medium-sized companies through a single index fund. In this article, I will explore the historical performance and risk of this index. But first, let's understand how this index is put together.
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What is the Nifty LargeMidcap 250 index?
The Nifty LargeMidcap 250 index is made up of 100 stocks from the Nifty 100 and 150 stocks from the Nifty Midcap 150 Index. But there's a big difference compared to other indices: it gives equal importance, or weightage, to both large and mid-sized companies. This means that half of the index is made up of stocks from the Nifty 100, and the other half is from the Nifty Midcap 150.
Normally, indices are based on free-float market capitalization, which means they give more weight to stocks that are more easily traded. However, the Nifty LargeMidcap 250 index doesn't follow this rule. If it did, around 80% of the index would be made up of large-cap stocks, and only about 20% would be mid-cap stocks.
Performance of the Nifty LargeMidcap 250 Index
I measured the performance of the Nifty Large Midcap 250 index by checking its returns over periods of 3 years, 5 years, and 7 years. Then, I compared these returns with those of other indices like the Nifty 100, Nifty Midcap 150, Nifty Smallcap 250, and also with actively managed large & mid-cap funds.
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Average rolling return comparison (in % pa)
| Index | 3Y | 5Y | 7Y |
| Nifty 100 | 13.46 | 12.56 | 12.74 |
| Nifty Midcap 150 | 18.74 | 15.68 | 16.68 |
| Nifty Smallcap 250 | 16.33 | 11.7 | 13.2 |
| Nifty LargeMidcap 250 | 16.17 | 14.23 | 14.83 |
| Large & mid cap active funds | 17.1 | 14.3 | 15.13 |
(Data between January 1, 2013, and January 1, 2024, and for TRI indices)
It's important to note that investing in equity funds for only 3 years might not give you the full picture. I used this timeframe for analysis purposes to get a medium-term view. Ideally, if you're investing in an equity fund, you should have a time horizon of 5 years or longer.
To make it easier to understand, I converted the returns into ranks. So, if a number is higher for a rolling return period, it means the rank is lower.
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Ranks for average rolling returns comparison
| Index | 3Y | 5Y | 7Y |
| Nifty 100 | 5 | 4 | 5 |
| Nifty Midcap 150 | 1 | 1 | 1 |
| Nifty Smallcap 250 | 3 | 5 | 4 |
| Nifty LargeMidcap 250 | 4 | 3 | 3 |
| Large & mid-cap active funds | 2 | 2 | 2 |
(Data between January 1, 2013, and January 1, 2024, and for TRI indices)
In comparison, the Nifty 100 index tends to have the lowest returns, ranking either 4th or 5th across different periods. This isn't surprising since it mainly consists of large-cap stocks, which typically have lower returns. However, the opposite isn't true – the small-cap index performs second worst across these time spans.
The mid-cap index performs the best overall, followed by actively managed large & mid-cap funds. The Nifty LargeMidcap 250 index falls in the middle in terms of returns, ranking 3rd twice and 4th once.
Risk-adjusted returns of the Nifty LargeMidcap 250 Index
Let's start with a quick explanation of what risk-adjusted returns mean.
When you invest in something, you're taking a risk in hopes of getting a return. Ideally, you want to find a balance where the risk is low, but the returns are good. On the other hand, if the risk is high and the returns are low, that's not so great.
So, to understand how well your investment is doing, you need to consider the returns about the risk you're taking. That's where risk-adjusted returns come in.
To calculate risk-adjusted returns, I looked at the average returns over certain periods and divided that by the standard deviation, which measures how much those returns tend to vary. Basically, the higher the number I get, the better. It means you're getting more returns for each unit of risk you're taking with your investment.
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Risk-adjusted returns (in % pa)
| Index | 3Y | 5Y | 7Y |
| Nifty 100 | 2.7 | 3.71 | 7.71 |
| Nifty Midcap 150 | 1.86 | 2.85 | 8.14 |
| Nifty Smallcap 250 | 1.15 | 1.61 | 5.86 |
| Nifty LargeMidcap 250 | 2.24 | 3.29 | 8.31 |
| Large & mid-cap active funds | 2.14 | 3.19 | 9.26 |
(Based on rolling returns and their standard deviation between January 1, 2013, and January 1, 2024)
Let's simplify things by ranking the risk-adjusted returns. In this ranking, higher numbers mean lower ranks.
Ranks for risk-adjusted returns
| Index | 3Y | 5Y | 7Y |
| Nifty 100 | 1 | 1 | 4 |
| Nifty Midcap 150 | 4 | 4 | 3 |
| Nifty Smallcap 250 | 5 | 5 | 5 |
| Nifty LargeMidcap 250 | 2 | 2 | 2 |
| Large & mid-cap active funds | 3 | 3 | 1 |
(Based on rolling returns and their standard deviation between January 1, 2013, and January 1, 2024)
Let's break it down starting with the Nifty 100. It ranks highest for the 3-year and 5-year periods, meaning it offers lower returns but also lower risk. So, its risk-adjusted returns are good. However, its charm fades over 7 years.
The Nifty Mid and Small indices usually rank lowest. While the Nifty Midcap index offers higher returns, it also has higher risk, leading to lower risk-adjusted returns. The Nifty Smallcap index is disappointing, offering lower returns with higher volatility, making it a bad deal.
Active large & mid-cap funds perform decently, ranking in the middle for 3 and 5 years and at the top for 7 years.
But the standout performer is the Nifty LargeMidcap 250 index, consistently ranking 2nd across all time frames. So, although its returns may not be the highest, it takes less risk to achieve them, resulting in high risk-adjusted returns. Considering its risk-return profile, this index is worth considering.
Chakravarthy V., Co-founder & Executive Director, Prime Wealth Finserv Pvt. Ltd
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Business NewsMutual FundsNifty LargeMidcap Index for a blend of stability and high returns. Details here
First Published:6 May 2024, 01:27 PM IST
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