Equal Weight Index Funds in India: A Balanced Approach to Equity Investing

Overview of Equal Weight Index Funds

Core Mechanism and Structure

The EW index funds passively replicate an Equal Weight Index, where each stock is assigned an identical/equal investment. For example, the Nifty 50 Equal Weight Index — the most popular benchmark in this category — includes the same 50 companies as the standard Nifty 50 but allocates approximately 2% to each (100/50) rather than ~13% in HDC Bank and 8% each in RIL, ICICI Bank and others as per their respective weightages in the index. The EW fund periodically rebalances, typically quarterly, to restore equal weights. This involves selling shares of outperforming stocks (which have gained weight) and buying more of the underperformers (which have lost weight). This disciplined "buy low, sell high" approach introduces a natural rebalancing premium and tilts the portfolio towards mean reversion. In India, equal-weight indices are managed by NSE Indices, with popular variants including:

• Nifty 50 Equal Weight (generally gave 4% higher CAGR than MW version over 5 years)
• Nifty 100 Equal Weight (generally gave 3% higher CAGR than MW version over 5 years)
• Nifty 500 Equal Weight (generally gave 1% higher CAGR than MW version over 5 years)
• Nifty Top 10/20 Equal Weight (not much difference with MW version)

In reality, these EW Nifty Index funds act as a flexi-cap variant, as they provide exposure to the large-cap universe with an enhanced mid- & small-cap experience without the need for venturing into mid- and small-cap funds separately. This results in:

• Broader sector balance (less dominance by banks & financials, IT/Techs and energy)
• Greater sensitivity to mid-tier performers within the index
• Reduced exposure to momentum-driven bubbles in select blue-chip large-caps

Advantages of the EW Nifty Index Fund for the Indian Market Context

• Enhanced Diversification: By capping individual stock influence, equal-weight funds lower concentration risk, particularly meaningful in India, where select large-caps can sway benchmarks significantly – like a 5% move in the index; pivotal stocks, like HDFC Bank or RIL, could move the index significantly
• Rebalancing Discipline: Quarterly rebalancing captures gains from laggards and trims winners, potentially boosting returns during broader market rallies or when mega-caps usually underperform.
• Historical Outperformance in Certain Periods: Over multi-year horizons, equal-weight versions have frequently delivered competitive or superior returns due to exposure to undervalued or smaller names within large-cap universes.
• Lower Sectoral Skew: Avoids heavy reliance on dominant sectors, providing a more diversified reflection across the economy.
• Cost-Effective Passive Strategy: Expense ratios remain low (typically 0.3–0.5% for direct plans), though slightly higher than plain vanilla market-cap funds owing to regular rebalancing (rejig).

Disadvantages and Risks of EW Index funds vs MW version

• Higher Volatility/Beta: Increased exposure to mid-tier high PEG stocks (like Eternal) or even startups (like Jio Finance in Nifty EW) can lead to higher beta (volatility/price swings) compared to mega-cap-heavy MW benchmarks.
• Higher expense ratio/transaction costs: Frequent rebalancing generates higher transaction costs and potential short-term capital gains tax implications in non-tax-advantaged accounts.
• Underperformance in Concentrated Bull Runs: When a handful of large caps lead, equal-weight funds may lag.

Performance Insights (Up to Early 2026)

Recent data highlights the strategy's potential. In 2025, the Nifty Equal Weight Index delivered approximately 15.14% returns, outperforming the Nifty 50's 11.63% (including dividends). Over three years, the Nifty 50 Equal Weight returned around 67%, compared to 46% for the Nifty 50. 

As of early 2026, funds tracking these indices show solid trailing returns (CAGR):

• 1-year: ~13–15% 
• 3-year: ~18–20% 
• Since inception (for older funds): ~16%
• The 5-year average CAGR for EW index funds 16.5% vs 12.5% for MW Index funds
• Long-term studies indicate that equal-weight indices often exhibit better risk-adjusted returns, with higher Sharpe ratios over extended periods due to diversification benefits. These funds have attracted inflows as investors seek alternatives to highly concentrated benchmarks.

Popular Equal Weight Funds

• DSP Nifty 50 Equal Weight Index Fund  
• HDFC Nifty50 Equal Weight Index Fund 
• Sundaram Nifty 100 Equal Weight Fund
• Aditya Birla Sun Life, 
• ICICI Prudential, 
• UTI and SBI variants

Conclusion

Over the years, due to the typical Nifty Index rejig, the Nifty Equal Weight Index has given a higher return compared to its normal Market Weight (MW) versions simply because new Nifty entrants are mostly startups – not matured businesses like normal Nifty heavyweights (HDFC, RIL, ICICI Bank, etc.) – having a standard 20-25% EPS CAGR. These new entrants are growing, and thus, EPS is also growing abnormally due to the lower base effect. Equal-weight index funds represent a compelling evolution in passive investing within the Indian market. Historically, Nifty EW index funds have outperformed their MW versions by around 3-4% over 5 years. But there are some inherent risks too in the EW version of Nifty, as fragile, expensive stocks may burst in any serious market meltdown, which will drag the EW index/funds much lower than their MW versions. Also,  unlike Nifty, other sectoral indices, such as financials/banks and ITs, may not provide relatively higher returns in the EW version compared to MW because of the high concentration of leading names.