The Nifty 500 is a stock market index in India. The index represents the top 500 companies listed on the National Stock Exchange (NSE) based on market capitalisation. The index includes a mix of large-cap, mid-cap, and small-cap companies from varied sectors—from IT to the pharmaceuticals and from the banking sector to the real estate market. The Nifty 500 is a key indicator of market trends and economic conditions.
How is Nifty 500 calculated?
The Nifty 500 index is estimated based on the free-float market cap of each stock. The term ‘free-float market’ here implies trading of shares that are available for the general public. The index value is calculated relative to the reference point, meaning a base year and base value are considered. One can also estimate the free-float market cap by multiplying the number of shares readily available in the market by the price of the equity.
| Parameter | Description |
| Methodology | Free-float market capitalisation |
| Base value | 1000 |
| Base date | January 1, 1995 |
| Equity universe | Top companies listed on NSE |
| Review frequency | Semi-annual |
NIFTY 500 index value = (Free-float market cap/ Base free-float market cap)* Base of value of NIFTY 500 index.
Benefits of Nifty 500
The Nifty 500 index is leveraged for various purposes and applications, such as comparing fund portfolios, launching index funds, Exchange Traded Funds (ETFs), and other financial products. Financial analysts, policymakers, and investors monitor it closely to track the performance of the Indian economy.
How to invest in Nifty 500?
While you cannot directly invest in the Nifty 500 index, you can always use this index to find the trending stocks in the market and invest in them. Alternatively, you can choose from various other index-linked financial instruments like mutual funds and ETFs to grow your portfolio.
Eligibility criteria
Before you trade Nifty 500 stocks, it is necessary to understand the selection criteria for index constituents. The Nifty indices include all equity shares listed on the NSE. However, it excludes convertible stocks, bonds, warrants, rights, and stocks that provide a fixed return. Companies must form part of the eligible universe for inclusion in the Nifty 500 index. For companies and their stocks to be included in the index, they must be:
- Ranked within the top 800 based on daily turnover and market cap.
- Should have traded for at least 90% of days in the last six-month period.
- The stock must be listed on the NSE.
- Stocks that are ranked in the top 350 based on their full market capitalisation are automatically considered.
In terms of index governance, a professional team and a three-tier governance structure are in place to manage all NSE indices. The governance includes the Board of Directors of NSE, the Advisory Committee (Equity), and the Maintenance Sub-Committee of the index.
Stocks vs. Mutual funds
One can think of purchasing the stocks considered in the Nifty 500 index, or you could invest in mutual funds that replicate this index in its portfolio. Typically, stocks come with higher risk volatility, while mutual funds diversify their investments with limited potential gains. The major differences between stocks and mutual funds are covered in the table below:
| Stocks | Mutual funds |
| You get to purchase the shares of your target companies. | You get to invest by purchasing units from respective Asset Management Companies (AMC) |
| You could start from a couple of top-performing stocks basis the investment research that you conduct. | You could assess the performance of different mutual funds on several platforms to make your decision. |
| Keep your portfolio diversified by investing in stocks of multiple companies. | A mutual fund investment keeps your portfolio diversified. |
| You can manage your portfolio. | A fund manager typically manages the mutual fund portfolio. |
| You typically buy stocks at a time. | You can buy mutual funds through SIPs or lump-sum. |
Significance of the NIFTY 500 index in financial markets
The Nifty 500 index represents 95% of the market capitalisation of NSE. It is often an industry benchmark for reflecting on the performance of the Indian stock market. The historical trend data helps analysts and policymakers analyse and understand market sentiments. It allows investors to diversify their portfolios as the market offers varied investment products, from index-linked mutual funds to ETFs.
Conclusion
The Nifty 500 index provides insights that are prerequisites for making investment decisions. The index has witnessed tremendous growth over the years and is a reliable tool for earning relatively risk-free returns. It is a clear indicator of the performance of stocks of different companies listed on the NSE and, thus, economic health. Investing in index-linked products reduces risks associated with single-stock investments, thus offering diversified exposure to one’s portfolio. It stands out as the top choice for passive investors who refrain from handpicking their stocks.
