Trimming Downsides To Deliver Returns

The Nifty Low Vol 30 comprises large-cap stocks whose prices have swung the least in the past one year

- Aarati Krishnan

In equity investing, the secret to wealth creation often doesn’t lie in maximizing returns when the market is booming, but in containing losses when it is going down the tube. So, wouldn’t it be nice to have an equity portfolio that is less volatile than the market, but delivers better returns in the long run?

Well, if this sounds impossible, it is the intent behind the NSE’s Nifty 100 Low Volatility 30 strategy index.

How it’s constructed

To construct the Nifty 100 Low Vol 30 index, index providers cherry-pick the 30 least volatile stocks from the top 100 names on the NSE. Volatility here is measured by the standard deviation of the stock’s returns in the last one year.

The 30 stocks with the least standard deviation make it to this club. Standard deviation is a statistical measure of how much a specific number in a time series differs from its average. Simply put, the Nifty 100 Low Vol 30 owns large-cap stocks whose prices have swung the least in the last one year.

Only stocks available for trading in futures and options and with a history of one year are considered. The weight of individual stocks is decided based on their low-volatility scores, too, with the least volatile ones bagging the most weights. This index is reviewed and rebalanced every quarter.

A more diversified basket

Thanks to its unique filter, the Nifty 100 Low Vol 30 index has a very different composition from its parent index, the Nifty 100.