How to Invest in Nifty 50: A Step-by-Step Guide

Stock markets in India have been on a golden run in recent years and equity investing has attracted a lot of attention from retail and HNI investors. Nifty 50 one of the top indices in India has delivered 16% CAGR and Sensex has delivered a CAGR of 13.8% in the last 20 years. The registered investor base at NSE has tripled from March 2020 to March 2024 with nearly 9.2 crore retail investors, accounting for 20% of households investing their savings in markets. 

If you are considering investing in the stock market, investing in Nifty 50 can be the first step to begin your journey. This article will help you understand how to invest in Nifty 50 and the benefits and risks involved in that. So let’s get started!

What is Nifty 50?

If you are new to stock market jargon, let us first learn what Nifty 50 is. Nifty is the short form of NSE or National Stock Exchange, and Nifty 50 is a broad index comprising 50 stocks of large blue-chip companies listed on NSE. It is a diversified mix of stocks from different sectors and represents India's 50 largest and most widely traded companies. Nifty 50 is also a benchmark to gauge the health of Indian stock markets, wider industry, and economy. 

Nifty 50 companies are selected based on market capitalisation and liquidity. The list of 50 stocks is dynamic and changes with new stocks added or removed as their market capitalisation changes. 

How to Invest in Nifty 50?

Various financial products, such as index funds, index-based derivatives, ETFs, managed portfolios, and overseas funds, track the Nifty 50 as their underlying benchmark. Investors can use any of these instruments to invest in the Nifty 50. This range of available instruments makes the Nifty 50 an attractive option for equity investors looking to engage in the Indian market with a diversified portfolio of stocks from various sectors and top industry performers.

Let’s discuss how you can invest in Nifty 50 through different types of instruments.

Invest in Nifty 50 Through Index Funds

Index funds are mutual funds that track a particular index. These funds are passive funds which means the fund manager need not make stock-specific investment decisions but invest in the index as a whole. 

These funds have a lower expense ratio than regular mutual funds. Index funds are ideal for investors looking to invest in equity markets while minimising risks. They provide an opportunity to spread risk with diversification and minimal intervention. As the economy grows, the broad base index as a whole moves up and generates wealth for investors.

Steps to Invest in Nifty 50 Index Funds

• Log in to the Rupeezy Invest App.

• If you are new to the app, set up an account with your Aadhaar and PAN card, and complete the verification.

• Once the account is active, navigate to the ‘Explore’ option on the lower navigation bar.

• Search your choice of fund or ‘Equity Index Fund’ in the fund category.

• View all the funds in this category on a simple Risk-Return graph.

• Go to ‘List View’ and check fund details.

• Select the fund of your choice and click ‘Invest’.

• Choose the One Time (Lumpsum) or SIP option and enter the investment amount. 

• Make payments using UPI or net banking.

Check out this blog on “how to invest in index funds” to gain a better understanding.

Invest in Nifty 50 Through ETFs (Exchange-Traded Funds)

By definition, an ETF is a security traded on the stock exchange. It can have stocks, indices, bonds, commodities, or a basket of assets as the underlying security.

ETFs are traded on stock exchanges directly like a stock. Investing through ETFs is simple, fast, and cost-effective. The price of an ETF changes all through a trading day like stocks and you can trade units multiple times, unlike mutual funds. Thus ETFs offer higher liquidity and lower fees compared to mutual funds. 

ETFs are passively managed and the fund manager does not attempt to outperform the underlying index, it simply tracks the index as it is. 

You can invest in Nifty 50 through ETFs by following simple steps: 

• Log on to your Rupeezy app.

• Go to the Watch list tab and type ETF. Here you will find various ETFs listed on the NSE. 

• Select ETFs based on Nifty 50, check the ETFs performance chart, and details.

• Click ‘Buy’ and make payment using UPI or Net Banking.

Invest in Nifty 50 Directly Through Derivatives

A derivative is a financial instrument that derives its value based on an underlying security or asset. An index derivative is a type of derivative that is based on indices as its underlying asset. 

NSE offers trading in Futures and Options contracts based on Indices such as NIFTY 50, NIFTY Bank, NIFTY Financial Service, NIFTY Midcap Select, and NIFTY Next 50. You can trade in Nifty 50 by 

There are two types of derivatives available for trade-in nifty 50, Futures and Options contracts.

1. Options Contract: Options Contract is an agreement between buyer and seller where the buyer has a right but not an obligation to buy or sell the underlying index-based security. The buyer is required to pay a premium to buy an options contract. Derivatives contracts have a specific expiry date, beyond which, the contract is not valid. 

For example, if you are bearish about the index in the future you can write a put option. If the index value falls before expiry, you have the option to sell the underlying security.

2. Futures Contract: A futures contract is an agreement to buy or sell the underlying index at a predetermined price on the contract expiration date. Futures contracts are binding agreements where parties are obligated to buy or sell the security as per terms. These contracts are settled in cash without any actual delivery of assets.

For example, if you are bullish on an index, you can buy a futures contract at today’s index value. As the expiry nears and the index value goes up, you stand to gain on the expiry of the contract.

You can trade in Nifty index Futures derivatives in the following steps:

• Visit the Rupeezy app and go to the ‘Watchlist’ tab.

• Search for Nifty50 and select ‘Futures’ tab.

• Select the future contact for the current month, next month, and future month expiry. 

• Check the contract details such as price movement, volume, and market depth.

• Click on ‘Buy’ to proceed with buying a contract.

• Select the number of Lots, and price, and check the margin required.

• Add the required margin and proceed with Order Placement.
  

Benefits of Investing in Nifty 50 Index Derivatives

Index derivatives offer various benefits given below:

• Experienced investors use index derivatives to hedge their cash market positions and control overall risk.

• Index derivatives allow traders the potential to make large profits by paying a small upfront margin.

• Index derivatives can be traded at a lower cost compared to direct stocks. 

Risks of Investing in Nifty 50 Index Derivative

• Index derivatives are complex financial instruments to understand and invest in. 

• Derivatives are market-linked instruments that carry the risk of volatility since derivatives have a defined expiry period. 

• Derivatives work on leverage with a small upfront margin and can be far riskier with magnified losses.

Minimum Money Required to Invest in Nifty 50

You do not require a huge outlay to invest in Nifty 50. You can buy index mutual funds for as low as Rs 1000 or set up a SIP for Rs 500 per month. In the case of ETFs, there is no minimum investment requirement, ETFs are listed on stock exchanges and investors can buy even a single ETF at the prevailing market price. However, derivatives contracts entail a minimum contract size.

Explore Nifty Derivatives trading with Rupeezy. Trade with Options Chain, Strategy Builder, Trading from Charts, and more advanced features at zero cost. Download the app now. 

How to Invest in Nifty 50 as a Beginner

Beginners can look at index funds to start investing in Nifty 50 as index funds are simple, easy to understand and the process of investing is not complicated. Investors can start investing with a small amount or set up SIP starting at Rs. 500 a month. Index funds are easily available on all online platforms. Explore Rupeezy Invest and start investing within minutes. 

How to Invest in Nifty 50 for the Long Term

Equity investment can be volatile in the short term. Stock markets and Indices are some of the best asset classes for long-term wealth creation as they are directly linked to the growth of industry and economy. When businesses grow, their stocks rise in value and indices trend upwards over a long-term horizon despite short-term fluctuations or negative events.

Therefore, it is beneficial to invest in Nifty 50 through Nifty 50 index funds and index-based ETFs. Both these instruments can be held for the long term, do not have any expiry date, and are more cost-efficient compared to active mutual funds.

Benefits of Investing in Nifty 50

There are several benefits of investing in Nifty 50 as discussed below:

Diversification

Since Nifty 50 contains the top 50 stocks by market capitalisation, you invest in large blue chip stocks from different sectors. This spreads the overall risk as there is no concentration in any sector and the portfolio is restricted to good quality large-cap stocks performing well.

Cost Efficient

Since index-based instruments e.g. index funds or ETFs are not actively managed and do not require superior investment decisions to outperform the markets, the cost and expense ratios are lower compared to other equity instruments.

Ease of Investment

Nifty 50 index funds and ETFs are easily available through online platforms and the process of investing is straightforward. Even a novice investor and start investing with a small corpus.

Low Risk, Better Returns

Nifty 50 being the benchmark index for Indian markets has delivered attractive returns over the long term with low risk. 

For example, Nifty 50 has delivered a CAGR of 16% in the last 20 years. The index has multiplied by nearly 20 times in 20 years. In comparison, The S&P 500 CAGR of 14%, the gold index returned 13% CAGR and real estate gas delivered  8.4% CAGR to the investors in the same period.

Conclusion

To conclude, Nifty 50 constitutes the top 50 companies in the Indian stock market. It is a microcosm of India’s industry, economic prowess, and growing clout as an economy. Investing in Nifty 50 is an excellent way to invest in equities at a lower risk. Index funds, ETFs, and derivatives are the popular instruments to invest in Nifty 50 for retail and institutional investors. 

Benefit from Nifty 50 index growth potential, start investing in index funds with Rupeezy Invest. Invest in direct plans at zero commission, use data analytics tools for easy fund comparison and selection, and choose from leading AMCs and top-performing schemes. 

FAQs

What are the risks involved in investing in Nifty 50?

Nifty 50 is a selection of the top 50 stocks listed on the National Stock Exchange (NSE) by market capitalisation. There is an inherent risk of volatility involved in equity investments but with careful research and planning you can mitigate risks and build wealth over a long period of time. 

Should You Invest in Nifty 50?

Yes, Nifty 50 represents the top 50 stocks on the NSE, these are blue chip companies from different sectors that offer opportunities for long-term growth in portfolio and lower risk compared to small-cap or early-stage businesses. 

Can I Directly Invest in Nifty 50?

You can invest in Nifty 50 through index funds, Exchange Traded Funds, or Derivatives with Nifty 50 as their underlying asset. Since Nifty 50 is a basket of stocks, you cannot invest directly but, can invest through instruments based on the index. 

How to trade in Nifty 50?

You can invest or trade in Nifty 50 via Index Funds, Nifty 50 ETFs, or through Nifty Derivatives. Log on to Rupeezy and find direct Index Funds, ETFs, and Derivatives trading with advanced trading tools.

Which Nifty 50 Index Fund Is Best? 

Top Nifty 50 Index Funds include ICICI Prudential Nifty 50 Index Fund, HDFC Index Fund - Nifty 50 Plan, UTI Nifty 50 Index Fund, and SBI Nifty Index Fund. Check out our article on Best Index Funds in India on Rupeezy for more details