Tipping Point: What is an equal-weighted index?

What is an equal-weighted index?

Most stock market indices are market-cap weighted indices, including Sensex and Nifty, which give higher weight to stocks having higher market capitalisation. Due to this, stocks like ITC, HDFC, Infosys, etc have high weights in the Nifty. In an equal-weighted index, all stocks that comprise the index have equal weight.

What is the advantage of an equal-weight index?

Historical data indicates that while mid- and small-cap stocks are more volatile, they have the potential to provide higher returns over the long term. By investing in an index fund based on an equal-weight index, investors hope to earn higher returns over the long term. Sundaram Smart Nifty Equal Weight Fund, an index fund, is based on an equal weight index.