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Business News/ Mutual Funds / Your Questions Answered: What is the Nifty 100 Low Volatility 30 Index and its pros and cons?

Your Questions Answered: What is the Nifty 100 Low Volatility 30 Index and its pros and cons?

The Nifty 100 Low Volatility 30 Index tracks the 30 least volatile stocks within the Nifty 100, appealing to risk-averse investors seeking stability in turbulent markets. It serves as a benchmark for various financial products and is recalibrated semi-annually for up-to-date performance.

The Nifty 100 Low Volatility 30 Index provides a unique opportunity for investors seeking stability in the equity market.

Q. I am an insurance broker working with an auto insurance company. My wife is a beautician. We have been investing in debt funds for the past 10 years. However, we now wish to diversify, we have a low tolerance for volatility since my income varies a lot depending on the sales I make. I have been looking to invest in index funds with low volatility and some of my acquaintances have suggested the Nifty 100 Low Volatility 30 Index. Can you please elaborate on its constituents and the pros and cons of investing in index funds tracking the Nifty 100 Low Volatility 30 Index?

Nitesh Vasvani, Raipur, Chhattisgarh

The Nifty 100 Low Volatility 30 Index is an index developed by the National Stock Exchange of India, designed to track the performance of the 30 least volatile stocks within the Nifty 100 index. This index is particularly appealing to investors who are risk-averse yet seek exposure from the equity markets, as it aims to reduce the impact of market fluctuations on the investment.

The constituents of this index are selected based on their volatility figures over the last year, with the least volatile stocks receiving the highest weightage. This method of weightage ensures that the index is skewed towards those stocks that have shown the most stability in a typically turbulent market.

The index is recalibrated semi-annually, which allows for the inclusion of stocks that have newly qualified as 'low volatility' and the exclusion of those that no longer meet the criteria. This dynamic approach ensures that the index remains reflective of the current market conditions. Also Read: Your Questions Answered: What are pros and cons of investing in Nifty MidSmallcap400 Momentum Quality 100 Index?

The Nifty 100 Low Volatility 30 Index is not just a theoretical construct; it serves as a benchmark for various financial products, including exchange-traded funds (ETFs) and index funds offered by prominent asset management companies like HDFC Mutual Fund, ICICI Prudential Mutual Fund, and Kotak Mahindra Mutual Fund, among others. Investors interested in this index can gain exposure through these mutual funds, which aim to replicate the performance of the index before expenses.

Eligibility criteria

The Nifty 100 Low Volatility 30 Index is a specialised index designed to track the performance of the 30 least volatile stocks within the Nifty 100. It's an intriguing option for investors who prefer stability in their investment portfolios. But what does it take for a stock to be part of this exclusive index? Let's delve into the eligibility criteria that govern the inclusion of stocks in the Nifty 100 Low Volatility 30 Index.

Eligible universe: Firstly, the stocks must be a part of the Nifty 100, which represents the top 100 large-cap companies listed on the National Stock Exchange (NSE) of India. This ensures that only stocks from well-established companies are considered for the index.

Listing history: A minimum listing history of one year is required for a stock to be eligible. This criterion is set to ensure that only those stocks with a proven track record and sufficient market data are included.Also Read: Your Questions Answered: What is the Nifty India Manufacturing Index and how are they taxed?

Trading in derivatives: The stocks should be available for trading in the derivative segment, specifically Futures & Options (F&O). This availability indicates a certain level of market maturity and liquidity, which is crucial for the index's reliability.

Exclusion of DVR shares: Differential Voting Rights (DVR) shares are not eligible for inclusion. This maintains the focus on ordinary shares that carry standard voting rights.

Selection criteria based on volatility: The core of the index's philosophy lies in volatility—or rather, the lack of it. Stocks are assessed based on their volatility, calculated as the standard deviation of daily price returns (log-normal) over the last year. The 30 stocks with the lowest volatility are then selected to form the index.

Index rebalancing: The index is reviewed and rebalanced every quarter. During each review, if an existing constituent is ranked within the top 60 based on the low volatility score, it retains its place in the index. This process ensures that the index remains up-to-date with the current market conditions.

Index governance: The index is managed by a professional team under a robust three-tier governance structure. This includes the Board of Directors of NSE Indices Limited, the Index Advisory Committee (Equity), and the Index Maintenance Sub-Committee, ensuring that the index is managed with the utmost professionalism and integrity.

The Nifty 100 Low Volatility 30 Index offers a unique proposition for investors looking for less volatile investment options in the Indian equity market. By adhering to strict eligibility criteria and a systematic selection process, the index provides a transparent and methodical approach to low-volatility investing.

For those interested in exploring this investment avenue, understanding these criteria is the first step towards making informed decisions. The index not only reflects the performance of low-volatility stocks but also serves as a benchmark for investment products designed to replicate its strategy. As the market evolves, so does the composition of the index, making it a dynamic and interesting segment for investors to watch.Also Read: Your Questions Answered: What is Nifty MidSmall Healthcare Index and how is it different from Nifty Healthcare Index?

Investing in index mutual funds that track the Nifty 100 Low Volatility 30 Index can be an intriguing option for investors looking to minimise risk while still participating in the equity markets. Here's an exploration of the advantages and disadvantages of such an investment strategy.


Stability: The Nifty 100 Low Volatility 30 Index is composed of large-cap stocks that are less volatile than their mid and small-cap counterparts. This can lead to more stable returns during turbulent market periods.

Diversification: By investing in a fund that tracks this index, investors gain exposure to a basket of 30 stocks, which can help in diversifying risk across different sectors and companies.

Passive management: These funds are passively managed, which typically results in lower expense ratios compared to actively managed funds. This can enhance net returns over the long term.

Systematic approach: The selection of stocks is based on a systematic approach that focuses on low volatility, potentially reducing the impact of human bias in the investment process.


Tracking error: There is always a risk of tracking error, where the fund's performance may slightly differ from the index it is designed to mimic, due to various factors like fund expenses and cash holdings.

Market sensitivity: Despite being a low-volatility index, it is still subject to market risks. Economic downturns and market corrections can affect the fund's performance.Also Read: Your Questions Answered: How is the Nifty 500 Index different from Nifty 50? Please elaborate


Investing in index mutual funds, such as those tracking the Nifty 100 Low Volatility 30 Index, is a popular choice for investors looking for exposure to a diversified portfolio of stocks with the convenience of mutual fund investing. However, it's crucial for investors to understand how these investments are taxed to make informed decisions and plan for potential tax liabilities.

Capital Gains Taxation: The taxation of index mutual funds in India is based on the concept of capital gains, which is the profit made from selling your mutual fund units. The tax rate depends on how long you hold the units before selling them.

Short-Term Capital Gains (STCG): If you sell your mutual fund units within one year of purchase, any profit you make is considered a short-term capital gain. STCG on equity mutual funds, which include index funds tracking the Nifty 100 Low Volatility 30 Index, is taxed at a flat rate of 15%.

Long-Term Capital Gains (LTCG): If you hold your units for more than one year, the gains are classified as long-term capital gains. In this case, gains up to 1 lakh in a financial year are exempt from tax. However, gains exceeding 1 lakh are taxed at a rate of 10%, without the benefit of indexation.

Dividend taxation

With the abolition of the Dividend Distribution Tax (DDT) in the Union Budget 2020, dividends are now taxed in the hands of investors. This means that any dividends you receive from your index mutual fund investments are added to your total income and taxed according to your income tax slab.

Investors should consider their investment horizon and the associated tax implications when investing in index mutual funds. For those looking to invest in the short term, it's important to factor in the 15% STCG tax. For long-term investors, understanding the LTCG tax and planning for any tax liability over the 1 lakh exemption can help in optimising returns. It's also worth noting that tax laws are subject to change, and staying updated with the latest tax regulations is essential. Consulting with a tax professional can provide personalised advice based on your individual circumstances.Also Read: Your Questions Answered: Should I invest in single stocks or index funds? Please elaborate

In conclusion, index mutual funds tracking the Nifty 100 Low Volatility 30 Index offer a balance between risk and return by investing in large-cap, low-volatility stocks. They are suitable for investors who prefer stability over high growth and are comfortable with the trade-offs involved, such as potentially lower returns during market rallies and the inherent risks associated with equity investments. As with any investment, it's crucial to align the choice with one's financial goals, risk tolerance, and investment horizon.

The Nifty 100 Low Volatility 30 Index represents a significant innovation in the Indian financial market, offering a way for investors to participate in the equity markets with potentially lower risk. Its methodology, which emphasises stability and reduced volatility, aligns with the needs of conservative investors and those looking to diversify their portfolios with less volatile equity assets. As with any investment, potential investors should conduct thorough research and consider their individual risk tolerance and investment goals before investing in products linked to this index.Disclaimer: Investing in mutual funds involves risks, including potential loss of principal. Please consult with a financial advisor before making any investment decisions.

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