Lower concentration risk, outperformance during broad rallies

Mirae Asset has launched the Mirae Asset BSE 200 Equal Weight Exchange-Traded Fund (ETF) and Fund of Funds (FoF).

- HIMALI PATEL

The new offers opened for subscription on February 24, 2025, and will close on March 5, 2025.

Understanding equal weighted indices

An equal-weighted index assigns the same weight to every stock, regardless of market capitalisa- tion. “In a BSE 200 Equal Weight index, all stocks receive 0.5 per cent weight at the time of rebal- ancing,” says Siddharth Srivastava, head-ETF product and fund manager, Mirae Asset Investment Managers (India).

A market-cap-weighted index like the Nifty 50 allocates weights based on free-float market capitalisation. “Larger stocks carry higher weight, while smaller stocks have a lower allocation,” says Srivastava.

Assigning equal weight changes the nature of the index. “Giving the same influence to smaller companies as to larger ones leads to a different risk- return profile,” says Arun Sundaresan, head-ETF, Nippon Life India Asset Management.

Lower concentration risk

An equal weight index has a higher chance of outperform- ing in a broad market rally.