What is Nifty Microcap 250 Index? How useful is it for retail investor

NSE’s Index Services subsidiary NSE Indices Limited has recently launched a new index Nifty Microcap 250 Index. The purpose of Nifty Microcap Index is to track the performance of stocks listed on NSE. This index includes 250 companies outside the scope of the Nifty 500 index. The Nifty Microcap 250 Index is made up of micro-cap companies ranked from 501 to 750 in the rankings. This ranking has been done on the basis of their overall market capitalization.

How effective is this index for retail investors

Nifty Microcap 250 comes after large-cap, mid-cap and small-cap. According to the NSE website, backtesting shows that the index has given an annual return of 16 per cent since its inception. This index is a better initiative for investors who want to invest directly in small and micro cap stocks. But how useful will this index be for retail investors who are constantly investing in the market? Experts believe that it would be better to keep such investors away from it. This is because due to lack of knowledge, many investors believe that small-cap funds offer higher returns than other equity schemes. But it is not correct. These small caps can give tremendous returns for a year or two, but they die out later.

Such funds can perform well in a rising market, but when there is a fall, it is they who get hurt the most. The returns of such funds fluctuate heavily. Since microcap stocks are more risky than small cap stocks, it may not be suitable for investors.

Sebi Clarification: Investment advisors can only advise their clients and cannot manage their funds

Investing in micro-cap companies is very risky

Any micro-cap company is very cyclical and is also surrounded by different risks. Apart from this, in the state of financial reporting in India, it is very difficult to ascertain the financial position of these companies. Large and medium companies have good return potential but micro-cap companies do not have this capability. Experts say that it is not that investing in small or micro-cap stock companies does not give profits. After all, this is where the so-called multibaggers emerge. But it is also true that they are also very risky. Remember micro cap has more risk than small cap.