Bandhan Nifty Alpha 50 Index Funds: A smart beta fund for adding alphas to your portfolio

Index funds have been gaining popularity with retail investors rapidly over the past few years (see the chart below). In the last 5 years, assets under management (AUM) in index funds grew from Rs 562 crores to more than Rs 3 lakh crores, a growth of more than 500X. While AUM of active equity funds is still nearly 3X of passive funds (index funds and ETFs), the explosive growth of index fund AUM is in line with global trends seen in the past.

Source: AMFI, as on 31^st May 2025

Apart from lower cost, a major appeal of index funds for the average retail investor is the simplicity. Index funds are like any other mutual fund. You do not need demat accounts or trading accounts to invest in index funds. You can purchase or redeem index fund units with the Asset Management Company (AMC) at applicable NAVs. You can invest in index funds from your regular savings through Systematic Investment Plan (SIP).

Factor Funds

Passive investing is often associated with buying broad market indexes like the Nifty 50 or Sensex, which include a wide range of stocks weighted by their market size. However, factor funds take a smarter approach by selecting stocks based on specific characteristics-or "factors"-that research shows can improve returns or reduce risk. For example, some funds focus on stocks that have done well recently (called momentum), while others look for undervalued stocks (value), high-quality companies, or those with lower price swings (low volatility). By following these rules, factor funds aim to combine the benefits of passive investing with smarter stock selection, often delivering better results at lower costs than traditional active funds.

What are the different types of factors funds?

As explained, factors are specific characteristics based on which stocks are selected in factor indices. However, the universe from which these stocks are chosen can vary widely. It could be a large-cap universe like the Nifty 50 or Nifty 100, a mid-cap universe such as the Nifty Midcap 150, a small-cap universe like the Nifty Smallcap 250, or a multi-cap universe that includes large, mid, and small-cap stocks.

In this article, we review the Bandhan Nifty Alpha 50 Index Fund, which tracks the Nifty Alpha 50 Index-an index drawn from a multi-cap universe comprising the top 300 stocks.

About Nifty Alpha 50 Index

The Nifty Alpha 50 Index selects 50 stocks from the top 300 companies by Free Float Market Capitalization that have historically generated higher alpha compared to the benchmark. Simply put, alpha represents the excess return of a stock over the benchmark return.

It is based on the premise that stocks that have performed well in the recent past are likely to continue doing so. Simply, the strategy works on the philosophy ‘Trend is your friend'.

Historically the index has tended to outperform broader market indices over the long term and tends to outperform by a significant margin during bull market or expansionary economic phase.

What is Alpha?

In the case of the Nifty Alpha 50 Index, stock selection is based on Jensen's alpha, which is calculated using the mathematical formula provided below.

Jensen's Alpha = Actual Returns – {Risk Free Rate + Beta * (Market Returns – Risk Free Rate)}

Alpha is a key performance metric used to evaluate the skill of active fund managers in generating returns above the benchmark through stock selection. Contrary to the common belief that passive investing cannot outperform the market, the Nifty Alpha 50 Index by design has the potential to deliver alpha within a passive framework by systematically selecting stocks. This approach allows investors to benefit from alpha at a much lower cost compared to traditional active funds.

Higher wealth creation potential of Nifty Alpha 50 Index

The chart below shows the growth of Rs 10,000 investment in Nifty Alpha 50 Index compared to the broad market indices viz. Nifty 50 TRI and Nifty 500 TRI. You can see that the Nifty Alpha 50 Index was able to create much more wealth than the broad market indices – true testimony of alpha creation.

Source: NSE, Advisorkhoj Research as on 26^th June 2025

Nifty Alpha 50 Index outperformed the broad market indices in up markets

The chart below shows the calendar year returns of Nifty Alpha 50 TRI versus the broad market indices, Nifty 50 and Nifty 500 TRI, over the last 10 years. You can see that Nifty Alpha 50 Index outperformed the broad market indices by a significant margin in the years when the market was up.

Source: NSE, Advisorkhoj Research as on 26^th June 2025

The index can be proxy to sector rotation/Mcap rotation strategy

The Nifty Alpha 50 Index is built to be dynamic, adjusting swiftly to changing market conditions. Historically, mid and small-cap stocks tend to outperform during bull markets, while large caps offer more resilience during bear phases. As shown in the table below, the Alpha strategy adjusts its composition in response to these shifts, reflecting its adaptive nature.

Source: NSE. Data as on 30^th May 2025.

Similarly, different sectors tend to outperform at various stages of the business cycle-for example, cyclicals may lead during economic expansions, while defensives perform better during slowdowns. The Nifty Alpha 50 Index captures this natural sector rotation by dynamically selecting stocks that are currently generating higher alpha. As a result, the index not only reflects market leadership changes across market caps but also across sectors, helping it stay aligned with prevailing market trends.

Who can invest in Bandhan Nifty Alpha 50 Index Fund?

• Investors seeking capital appreciation over long investment tenures


• Investors who want their investment to outperform the market


• Investors having a long-term investment horizon (minimum 5 years)


• Investors with high-risk appetite


• Investors can invest from their regular savings through SIP


• Investors do not need demat or trading accounts to invest in this fund

Investors should consult their financial advisors or mutual fund distributors if Bandhan Nifty Alpha 50 Index Fund is suitable for their investment needs.