Equal‑weight exchange‑traded funds (ETFs) have posted stronger returns than their market‑cap‑weighted counterparts over the past few months, narrowing the gap with the Nifty 50 and Sensex. By assigning the same weight to each constituent, these funds have benefited from a rally in mid‑cap and small‑cap stocks that are under‑represented in traditional indices. The recent outperformance has sparked interest among Indian retail investors looking for alternatives to conventional equity funds. The equal‑weight approach flips the usual bias toward large‑cap giants such as Reliance, HDFC Bank and Infosys. Instead, each stock – whether a heavyweight or a lesser‑known mid‑cap – contributes equally to the fund’s performance.
This rebalancing often leads to higher exposure to sectors like consumer discretionary, industrials and financial services, where many mid‑cap players have surged. However, it also means the portfolio can become more concentrated in narrower indices, amplifying sector swings. For the average salaried professional, the upside is clear: a modest allocation to equal‑weight funds can add a mid‑cap premium to a core Nifty‑linked portfolio. The downside is higher volatility and a potential dip if large‑caps regain momentum. Investors should evaluate their risk appetite, time horizon and the fund’s expense ratio before adding the strategy.
, long‑term capital gains after one year. Overall, a 5‑10 % slice of an otherwise diversified equity basket can capture the benefit without over‑exposing the investor to concentration risk. Monitoring performance remains essential.