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In Unit Linked Insurance Plans, the investment risks in the investment portfolio is borne by the policyholder

NIFTY ALPHA 50 INDEX

Investors follow an investment strategy to grow their money instead of parking their funds in stocks with a single market cap. The Nifty Alpha 50 Index is a strategy that tracks stocks with high alphas in the last year. Alpha is a metric that compares the stock performance with the market index. The components in this index are flexible and can be a part of any market cap. ...Read More

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NIFTY ALPHA 50 INDEX

NIFTY ALPHA 50 Index - Meaning, Stocks, Performance and Returns

NIFTY ALPHA 50 INDEX
February 19, 2025

Table of Content

 

The Nifty Alpha 50 Index is a stock index that tracks the 50 top-performing stocks from the Top 300 largest NSE listed companies based on ‘Jensen’s Alpha’. Jensen's alpha is a performance metric that measures an investment excess return when compared to the market. The weight of stocks in the index is based on their alpha scores. Stock weights are capped at the lower of 5% or 5 times the weight of the stock in the index based only on free float market capitalization

Unit Linked Insurance Plans (ULIP)

Unit Linked Insurance Plan offers both insurance and investment components. It allocates a part of the premium paid towards the plan to provide life cover and invests the remaining in market-related assets such as equity, debt, or balanced funds. The policyholders can opt to create an investment portfolio to align with their risk tolerance and financial goals. The plan's structure provides financial security to the policyholders and also allows them to grow their money over time. 

One of the investment options available under certain ULIPs is the NIFTY ALPHA 50 Index Fund. The objective of this fund is to provide capital appreciation by creating a diversified portfolio constituting stocks that are listed under the Nifty Alpha 50 Index. Though the growth potential in investments under this fund is higher, there is uncertainty as well due to periodical readjustments that impact the overall performance.

Another advantage of investing under ULIP is the flexibility to switch funds allowing the investors to move their funds to other funds depending on the market condition, risk tolerance, and financial goals.

What is the NIFTY ALPHA 50 Index?

The Nifty Alpha 50 Index is a standard index that traces 50 stocks with the highest alpha (metric comparing stock performance with market index) value from Top 300 largest NSE listed companies. Alpha indicates the stock’s returns over the benchmark index. The performance of the stock in the last year is considered for the selection. The index enables the investors to create a robust portfolio constituting outperforming stocks. The Nifty Alpha 50 Index is managed by the National Stock Exchange and benefits momentum-based investments. The index prioritizes high-performing stocks and readjusts the listing periodically, resulting in more volatility than Nifty 50 Index or Nifty 500 Index.

What Makes the Nifty Alpha 50 Index Special?

The Nifty Alpha 50 Index is unique owing to its formula-based approach that changes according to market conditions. It modifies the exposure to different categories depending on the correction in each segment.  The selection is based on historical performance rather than market capitalization. 

This trend makes it different from the traditional indices, which focus on the stability of the large-cap segment. Investors get greater exposure to high-volatility stocks and high-growth, making it beneficial for investors seeking fast returns. However, to maintain the high-alpha selection, the index is rebalanced every quarter.

NIFTY ALPHA 50 Index: Constituents & Selection Methodology

The Nifty Alpha 50 Index tracks the stocks depending on the weightage given to each of them as per Jenson’s Alpha scores. The stocks with high alpha scores will have outperformed the benchmark index in the previous year. Alpha helps identify stocks that have continuously outperformed the market.

The selection process involves ranking the stocks as per their alpha scores. The top 50 are then included in the Nifty Alpha 50 Index. The top 10 constituents as of January 31, 2025 are:

Constituent

Weight (%)

Indian Renewable Energy Development Agency Ltd

4.26

Rail Vikas Nigam Ltd

3.77

Cochin Shipyard Ltd

3.61

Inox Wind Ltd

3.24

Housing and Urban Development Corporation Ltd

3.21

Dixon Technologies (India) Ltd

3.17

Oracle Financial Services Software Ltd

3.02

Oil India Ltd

2.95

Motilal Oswal Financial Services Ltd

2.76

Mazagaon Dock Shipbuilders Ltd

2.74

Source: https://www.niftyindices.com/Factsheet/Factsheet_Nifty_Alpha50.pdf

Rebalancing is done every quarter using the data from the last 6 months ending on the last trading day of February, May, August, and November. While rebalancing, the allocation is concentrated in mid-cap and small-cap segments during a bullish market and inclined towards large-cap segments during a bearish trend. 

The dynamic selection process ensures that the investors have exposure to stocks that have displayed robust returns in the past.

What Are The Key Sectors in the NIFTY ALPHA 50 Index?

The stocks included in the Nifty Alpha 50 Index constitute various sectors depending on their growth potential and their historical contribution to gain high alpha scores. The index does not rely on a single sector and hence promotes diversification. 

However, due to its priority to high-alpha stocks, the sectors may vary according to prevailing market conditions and performance during periodical adjustments. Some of the key sectors are:

Sector

Weight (%)

Capital Goods

26.16

Financial Services

21.91

Healthcare

7.77

Consumer Durables

7.19

Construction

5.79

Consumer Services

5.38

Oil, Gas, and Consumable Fuels

3.89

Chemicals

3.50

Metals and Mining

3.30

Information Technology

3.02

Automobiles and Auto Components

2.61

Forest Materials

2.21

Power

2.01

Telecommunications

1.83

Realty

1.79

Fast Moving Consumer Goods

1.64

Source: https://www.niftyindices.com/Factsheet/Factsheet_Nifty_Alpha50.pdf

Stock Selection Criteria and Weighting Methodology for NIFTY ALPHA 50 Index

The stock selection criteria and weighting methodology for the Nifty Alpha 50 Index are given below:

Stock Selection Criteria

Stocks have to fulfil certain eligibility criteria for inclusion in the Nifty Alpha 50 Index. They are:

  • The companies should be housed in India and listed on the NSE.
  • Warrants, bonds, convertible bonds, and preferred stocks with guaranteed returns are not eligible.
  • The stocks should be a part of the 300 NSE-listed companies with the highest ranking based on free-float market capitalization.
  • To be a constituent of the Nifty Alpha 50 Index, the stocks should be listed for a minimum of 1 year.
  • A 100% trading history in the last year is mandatory for the stocks to be included in the Nifty Alpha 50 Index.

Weighting Methodology

The weighting methodology for the Nifty Alpha 50 Index entails the following procedure:

  • The alpha scores of the eligible stocks are calculated using the 1 year trailing price methodology wherein the price movement in the last year is considered. The outperformance of the stock compared to the overall market trend is assessed.
  • High returns are not the only criteria. The returns must be adjusted to the level of risk taken in investing in the stock.
  • Stocks with high returns associated with high risk will have a lower score.
  • A stock consistently outperforming the benchmark index after risk adjustment is given a higher score.
  • Fifty stocks with the highest scores are selected and included in the Nifty Alpha 50 Index.

What are the Key Stocks under the NIFTY ALPHA 50 Index?

The Nifty Alpha 50 Index features 50 stocks with high alpha scores in descending order. However, the order changes periodically due to rebalancing. The key stocks under the Nifty Alpha 50 Index include Tata Motors, Housing and Urban Development Corporation, Oracle Financial Services Software Limited, Rail Vikas Nigam, Kalyan Jewellers, Adani Enterprises, Bajaj Finance, L & T Finance Holdings, etc.

How has the Performance of the NIFTY ALPHA 50 Index and Other Indices Been?

The comparative performance of the Nifty Alpha 50 Index and other indices as of January 31, 2025, is given below:

Index Name

1-year returns 

5-year returns 

Since Inception 

Nifty Alpha 50

6.82%

30.06%

21.47%

Nifty 50 

7.97%

15.14

  

Nifty 500

10.06%

18.18%

12.44%

Source: https://www.niftyindices.com/Factsheet/Factsheet_Nifty_Alpha50.pdf

https://www.niftyindices.com/Factsheet/ind_nifty_500.pdf

https://www.niftyindices.com/Factsheet/ind_nifty50.pdf

Returns as of January 31, 2025

How to Invest in the Nifty Alpha 50 Index?

Investors can choose to invest in the Nifty Alpha 50 Index passively in 2 ways, i.e., index funds or Exchange Traded Funds (ETFs), without having to pick individual stocks.

Index Funds are passively managed mutual funds that track a stock market index like the Nifty Alpha 50 index. The objective is to create an investment portfolio that is similar to the index in terms of constituents and the weightage of each stock. The fund attempts to generate returns proportionate to the yields generated by the index after considering the tracking errors.

ETFs or exchange-traded funds have a structure similar to mutual funds. Professional fund managers, along with a team of analysts, manage the funds. ETFs differ from Index Funds in terms of real-time price change of the units. The investments can be traded on the stock market, like listed shares. 

The steps for investment in the Nifty Alpha 50 Index are:

  • Choose the investment route, i.e., Index Funds or ETFs.
  • Open a Demat and Trading Account with a registered broker
  • Track the Nifty Alpha 50 Index to compare different ETFs or Index Funds.
  • Allocate funds and review the performance regularly.

The above information is only mentioned with the purpose of providing you with details of the Nifty Alpha 50 Index.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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This material has been prepared for information purposes only, should not be relied on for financial advice. You should consult your own financial consultant for any financial matters.

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In unit linked policies, the investment risk in the investment portfolio is borne by the policyholder. The Unit Linked Insurance products do not offer any liquidity during the first five years of the contract. The policyholders will not be able to surrender/withdraw the monies invested in Unit Linked Insurance Products completely or partially till the end of fifth year. The name of the company, name of the brand and name of the contract does not in any way indicate the quality of the contract, its future prospects or returns.

Unit Linked Funds are subject to market risks and there is no assurance or guarantee that the objective of the investment fund will be achieved.

Unit Linked Insurance Products (ULIPS) are different from the traditional insurance products and are subject to the risk factors. The premium paid in the Unit Linked Life Insurance Policies is subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. Please know the associated risks and the applicable charges, from your insurance agent or the intermediary or policy document of the insurer. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns.

 

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