Two funds, even though they hold the same fifty stocks, can produce very different returns. Over the past year, the Nifty 50 lost money while the Nifty 50 Equal Weight gained more than 8%. The companies themselves did not change. What changed was how much of each stock was held.
This is the argument for equal weight funds, and it is also the whole risk. The difference comes from the weighting mechanism, not from which stocks are chosen.
the concentration problem in regular index funds
A regular Nifty 50 index fund assigns weight to each stock based on its free-float market capitalisation. The larger the company, the larger its slice of the fund. As of July 2026, the top ten stocks in the Nifty 50 made up 53% of the index. The biggest single holding, HDFC Bank, had a weight of 10.9%. The smallest constituent had a weight of 0.4%.
That structure means a few companies control how the index performs. If Reliance, HDFC Bank, and Infosys have a good year, the fund does well no matter what the other forty-seven stocks do. If those three companies stumble, the fund stumbles as well.
The Nifty 50 Equal Weight index solves this in a different way. Each of the fifty stocks receives 2% weight. No single company can dominate. The top ten holdings together account for 20%, compared with 54% in the regular index.
how the rebalancing works, and why it matters
Equal weight funds do not stay equal by themselves. If one stock rises and another falls, their weights drift apart. The fund must rebalance to bring the weights back to equal levels.
The Nifty 50 Equal Weight index rebalances each quarter. At each rebalance, the fund sells part of the stocks that have grown and buys more of the stocks that have shrunk. That is a buy-low, sell-high process. It is the opposite of a market-cap weighted fund, where winners automatically become larger holdings.
That quarterly churn costs money. More trading leads to higher portfolio turnover and higher transaction costs than a regular index fund, which trades very little between reconstitutions. The expense ratios are similar. The trading activity behind the scenes is different.
where the performance difference comes from
The returns depend on where market leadership lies.
When market gains broaden beyond the giants, the equal weight fund wins. Over the past three years, the Nifty 50 returned 6.7% annualised while the Nifty 50 Equal Weight returned 14.0%. Several heavyweight constituents performed poorly during this period. The Nifty 50 Equal Weight’s lower exposure to them helped.
Neither pattern lasts forever. Over the last fifteen years, the Nifty 50 outperformed in 58% of five-year rolling periods, while the Nifty 50 Equal Weight led in 42%. Their average five-year rolling returns were almost the same: 12.1% for the Nifty 50 and 12.3% for the Nifty 50 Equal Weight.
what the long-term record actually shows
The Nifty 50 Equal Weight index started in November 1995. Over the long term, the data is mixed.
From June 1999 onwards, the Nifty 50 Equal Weight gave 15.3% compounded annual growth rate, versus 13.5% for the Nifty 50. Over twenty years, the Nifty 50 Equal Weight gave 15.6%, versus 13.8% for the Nifty 50. Over fifteen years, the Nifty 50 was ahead at 12.0% versus 11.2% for the Nifty 50 Equal Weight. Over ten years, the gap widened further: 10.8% versus 8.9%. Over seven and five years, the Nifty 50 also led.
The pattern is not consistent outperformance. It is a cycle. Equal weight funds do well when the market broadens. They do poorly when the market concentrates. The timing of that cycle is not predictable.
the sector effect
Equal weighting changes sector exposure as much as it changes stock exposure.
In the Nifty 50, financial services dominate with about 35% weight. In the Nifty 50 Equal Weight, the largest sector is 20%, with a more balanced mix across metals, pharma, auto, and FMCG.
The change in sector mix explains why the performance is so different. In 2020, the Equal Weight index put more weight on metals and pharma than the Nifty 50, and less weight on financial services and IT. Because metals and pharma did well that year, the Equal Weight index benefited. In other years, the reverse happened.
An investor who chooses between the two is not simply picking one weighting method. The investor is picking a sector bet, whether the investor realises that or not.
who each fund suits
The regular index fund suits an investor who wants to own the market exactly as it is, with weights that follow how the market values each company. The regular index fund requires no view on market breadth or on leadership rotation. The regular index fund simply holds what the market holds.
The Equal Weight index suits an investor who wants to reduce concentration risk and is comfortable with the chance that the Equal Weight index may underperform when mega-caps lead. The Equal Weight index deliberately tilts away from the largest companies, and it works best when market gains are broad-based.
The Equal Weight index is not a replacement for the regular index fund. The Equal Weight index is a bet on how returns will be distributed across the market.
what retail investors should take from this
Both the regular index fund and the Equal Weight index hold the same companies. The difference is the weighting. That difference determines everything else: returns, sector exposure, turnover, and risk.
The Equal Weight index carries a contrarian tilt. The Equal Weight index buys more of what has fallen and less of what has risen. That strategy works when leadership rotates and fails when momentum persists.
FAQs
1. Do Equal Weight index funds hold different stocks than the regular index fund?
No. The Nifty 50 Equal Weight index holds the same 50 companies as the Nifty 50. The difference is the weighting. Every stock receives 2% in the Equal Weight version, while the regular index fund weights by market capitalisation.
2. Why does the Equal Weight index rebalance quarterly?
To restore the equal allocation. If one stock rallies and another falls, the weights drift apart. Quarterly rebalancing trims the winners and tops up the laggards, which is a mechanical buy-low, sell-high process. The rebalancing also increases turnover and transaction costs compared to the regular index fund.
3. When does the Equal Weight index outperform the regular index fund?
When market gains are broad-based rather than concentrated in a few mega-caps. Over the past three years, the Nifty 50 Equal Weight returned 14.0% annualised against the Nifty 50’s 6.7%. When heavyweights led, as between 2017 and 2020, the regular index fund won comfortably.
4. What is the concentration difference between the regular index fund and the Equal Weight index?
In the Nifty 50, the top ten stocks account for about 53% of the index, and the largest single holding carries 10.9%. In the Equal Weight version, the top ten account for 20%, and every stock carries roughly 2%.
5. Are Equal Weight index funds riskier than the regular index fund?
They carry a different risk, not necessarily a higher one. The greater exposure to smaller constituents within the index can increase volatility. Quarterly rebalancing adds turnover. The concentration risk is lower, which reduces the impact of any single stock’s underperformance.
