Taking stock: What you should know before investing in equal-weight indices

No single stock can heavily influence overall performance of such indices, leading to more diversified industry exposure

Equal-weight indices are increasingly popular, with several new index funds being launched by asset management companies (AMCs). Here’s a look at some of the key advantages and disadvantages of equal-weight indices.

Cap-based indices versus equal-weight indices

In a market cap-based index (such as Nifty 50, Sensex, Nifty Next 50, or Nifty Midcap 150), stocks with higher free-float market capitalisation receive greater weightage. In contrast, an equal-weight index assigns equal weight to all constituent stocks, although weights may change with performance. For example, the Nifty 50 Equal Weight Index rebalances all stocks to 2 per cent on a