Nifty LargeMidcap 250 Index: A healthy blend of stability and growth

This article is authored by Chintan Haria, Principal-Investment Strategy, ICICI Prudential AMC

There has been a strong buzz around small caps over the past few years, thanks to the runaway rally seen in the space. While they have a part in an investor’s portfolio, there are concerns regarding the stretched valuations seen in this space. This brings us to the large and midcap space, a pocket of the equity market which has a significant role to play as a part of one’s overall equity allocation in a portfolio. 

One index that blends the large and midcaps – the Nifty LargeMidcap 250 – offers robust opportunities for investors looking to park their money for the long term via SIPs or periodic lump sums.

With the stability and strong cashflows of large caps, and the growth potential and variety of midcaps, a Nifty LargeMidcap 250 index fund offers a diversified investment mix for an investor’s portfolio.

Healthy Diversified Benchmark

The Nifty LargeMidcap 250 Index combines the Nifty 100 large cap and the Nifty Midcap 150 benchmarks. Both large and midcap stocks would have 50 per cent weightage each in the Nifty LargeMidcap 250 index and this proportion would be reset every quarter. The index itself is rebalanced every six months.

Some key positives work in investors’ favour while investing in the Large-Midcap blended index.

Established large caps: The top 100 stocks by market capitalization are very well-researched and covered by analysts. These have large and established businesses with healthy cashflows, strong balance sheets, robust return ratios and dividend yields.

These large companies have the resilience to withstand challenges across business and economic cycles. Such companies add stability to the portfolio and hold steady over the long term. Many of them hold significant moats in the industries they operate in.

Growing midcaps: The next set of stocks from 101 to 250 form the midcap portion of the index. These are stocks that are usually in the growth phase of their business cycle, and many go on to become large caps over a while. They are geared to become the leaders of tomorrow.

A key advantage of the Nifty LargeMidcap 250 Index is that in the midcap portion, there are many sectors and segments such as industrials, healthcare, auto ancillaries, consumer discretionary and commodities with significant weights that find limited representation in the Large-Cap Nifty 100 index.

In addition, midcaps also usually feature high-growth future areas such as fintech and new-age consumer technology companies that increase the scope for capital appreciation.

Well-diversified blend: Given the 50:50 allocation to large and midcap stocks in the index, there is a well-balanced and diversified market cap mix. In terms of sectoral allocation and better representation for many segments, the Nifty LargeMidcap 250 is better placed than a pure large or midcap index.

Passive advantage: Investing in an index fund means no dependence on the fund manager’s performance. Costs or expense ratios are low for passive funds and typically investments can be started with tiny amounts – as low as Rs 100.  There is no demat account required as well.

Index performance

Rolling returns over longer timeframes give us a clearer picture of returns over the long term. The Nifty LargeMidcap 250 TRI has delivered healthy returns in this regard. When 5-year daily rolling returns are taken over the period January 2013 to February 2024, the index has delivered mean returns of 14.2 per cent.

If 3-year daily rolling returns are considered over the same period, the index has delivered 15.2 per cent on average.

These returns are a couple of percentage points higher than the large-cap index and a tad lower than the midcap benchmark. But the Nifty LargeMidcap 250 TRI also has a lower risk or standard deviation in returns.

When SIP returns (XIRR) over 10 years are considered, the index has given a healthy 18.7 per cent. If a 5-year SIP is taken, the returns are a robust 25.9 per cent.

In the last 10 calendar years, the Nifty LargeMidcap 250 TRI Index has beaten the Nifty 100 TRI in 7 of those years and even YTD 2024. In effect, exposure to the Nifty LargeMidcap 250 index can be a good diversifier and an easy way to achieve exposure to the top 250 companies in the listed universe cost-effectively.

*Mutual fund investments are subject to market risks, read all scheme-related documents carefully.

Disclaimer: The opinions expressed above are personal and may not reflect the views of DSIJ.