Ghosted indices: mutual funds generally ignore niche themes of exchanges, consider them too risky

This is a Mint Premium article gifted to you.Subscribe to enjoy similar stories.

Ever heard of the Nifty Waves index? Or the Nifty Sugar and Ethanol index?

Don’t be surprised if you haven’t. Not every index launched by a stock exchange ends up as a benchmark for mutual funds—some are too niche to be noticed.

Only a small fraction of niche indices that stock exchanges have started in recent years are used by asset management companies as benchmarks or tracked by passive products. Many niche indices merely exist, without any meaningful investor participation.

Niche indices are highly specific gauges that go beyond broad market categories, focusing on narrower segments of sectors, themes or investment factors. The Nifty Waves index, launched in May 2025, tracks companies in films, television, digital media, music and gaming. The Nifty Sugar and Ethanol index started in June and tracks the top 15 stocks of companies that produce sugar or ethanol.

Of the National Stock Exchange’s 61 niche indices, 23 are used as benchmarks by mutual funds or tracked by passive funds, according to an analysis by Mint of data from exchanges and Value Research. For the BSE, seven of its 26 niche indices are used as benchmarks or followed by passive funds. Currently, 80 of the 108 BSE equity indices are tracked by passive funds or used as benchmarks.

For the analysis, niche equity indices that are sub-categories of sectors, themes or a combination of multiple factors for factor indices were filtered out.

Many niche indices are not tracked by investment products simply because their underlying themes are still too specialized for AMCs and generally carry high risk, according to experts.

Nifty Sugar and Ethanol, Nifty Waves and Nifty SME Emerge (which tracks small and medium enterprises that are listed on NSE EMERGE trading platform) and conglomerate-specific indices like the Nifty India Corporate Group Index —Tata Group and the Nifty India Corporate Group Index—Mahindra Group have not attracted fund launches.

Some niche indices are highly cyclical, or their performance can change because of one regulatory change or event. A conglomerate-specific index fund may decline sharply if there is a corporate governance issue, said Vivek SG, an investment adviser and founder of Wealth Crafts. Such funds are suitable only for those who closely track such themes, said Vivek.

“Many AMCs first identify a niche theme or factor by back-testing historical data. They then ask the exchanges to create an index, which they can use as the benchmark for a new fund,” said an official, requesting anonymity.

As a result, a new niche index often remains associated with one AMC for years until another fund house sees an opportunity to launch a similar product. In some cases, the stock exchanges also approach AMCs to promote new indices.

Larger fund houses with a wider range of products are often more willing to launch a fund based on these indices. Their goal is to launch the fund early and wait for the theme to become popular. If that happens, the fund gets a decent share of assets.

When UTI Mutual Fund launched its Nifty200 Momentum 30 Index Fund in 2021, it was a niche gauge with assets of ₹805 crore. When momentum as a factor started picking up in 2023, the fund started getting more assets. Its assets swelled to ₹8,433 crore as of May.

NSE Indices Ltd, which owns and manages a portfolio of over 419 indices under the Nifty brand, told Mint that an index can be used for reasons other than just an investment product.

“We assess the success of an index across multiple dimensions rather than solely by the number of passive products tracking it,” NSE Indices said.

It added that globally, leading index providers maintain extensive libraries of indices, while only a relatively small subset is ultimately adopted as passive investment products. Many indices serve equally important purposes as portfolio construction, performance measurement, research, asset allocatio...