NIFTY 500

The NIFTY 500 represents the top 500 eligible companies based on full market capitalisation. The index is calculated using the free-float market capitalisation method.

• The NIFTY 500 represents the top 500 eligible companies based on full market capitalisation.
• It includes large-cap, mid-cap and small-cap companies from different sectors.
• Its base date is January 1, 1995, and its base value is 1,000.
• The index is calculated using the free-float market capitalisation method.
• It is reviewed twice a year.
• Investors use it to track broad equity market movements and compare portfolio performance.
• You cannot invest directly in the index.
• You can gain exposure through NIFTY 500 index mutual funds and exchange-traded funds.
   

The NIFTY 500 is a broad-based stock market index representing the top 500 eligible companies based on full market capitalisation. These companies are selected from the eligible universe of stocks traded on the NSE.
The index includes companies from large-cap, mid-cap and small-cap segments. It also covers several industries, giving investors a wider view of the Indian equity market.
For example, an index containing only large companies may not show how smaller companies are performing. The NIFTY 500 covers businesses of different sizes, making it useful for tracking broader market movements.
Investors and fund managers can also use the index as a benchmark. They may compare a portfolio’s performance with the NIFTY 500 to understand how it performed against the broader market.
 

The NIFTY 500 is calculated using the free-float market capitalisation method. Under this method, a company’s weight depends on the market value of the shares available for public trading.

Shares held by promoters, governments and strategic investors may not be included in the free float because they are generally not available for regular trading.

For example, suppose a company has 10 crore total shares, but only 4 crore shares are available for public trading. Its free-float market capitalisation will be calculated using those 4 crore shares and the current share price.

Companies are selected based on full market capitalisation, while their weights in the index are based on free-float market capitalisation.

What is the NIFTY 500 calculation formula?

The simplified NIFTY 500 calculation formula is:

NIFTY 500 index value = (Current free-float market capitalisation ÷ Base market capitalisation) × Base index value

The base index value is 1,000.

If the combined free-float market value of the index companies rises, the index value generally increases. If the combined value falls, the index generally declines.

For example, if the publicly traded value of several companies with higher index weights increases, it may have a greater effect on the NIFTY 500.

The actual index calculation also includes adjustments for corporate actions and changes in index constituents.

The NIFTY 500 can help investors understand broad equity market performance. Its main uses include:

• Broad market coverage: It includes 500 companies from different sectors and market-cap segments.
• Portfolio comparison: Investors and fund managers can compare their returns with the index.
• Diversified exposure: Index-linked products spread investments across several companies.
• Market analysis: Analysts can study the index to understand wider market movements.
• Index-linked products: They can be used as the basis for index mutual funds, ETFs and structured products.

Diversification can reduce the effect of poor performance by a single company. However, it cannot remove market risk because several companies may decline at the same time.

You cannot invest directly in the NIFTY 500 because it is an index and not a security that can be purchased.

You can gain exposure through:

• NIFTY 500 index mutual funds
• NIFTY 500 exchange-traded funds

• Other financial products linked to the index

  
  

You may also invest separately in companies included in the index. However, buying and managing shares of all 500 companies can require considerable money, research and regular portfolio monitoring.

For example, a NIFTY 500 index mutual fund pools money from investors and invests it in the index companies. You receive units of the mutual fund instead of purchasing every share separately.

ETFs are traded on a stock exchange and are generally held in a demat account. Index mutual fund units may also be held without a demat account.

Index funds and ETFs aim to follow the index, but their returns may differ slightly because of costs, cash holdings and tracking error. These investments remain subject to market risk.

A company must be part of the eligible universe before it can be considered for inclusion in the NIFTY 500.

The main eligibility conditions include:

• The company must be domiciled in India.
• The security must be listed and traded, or permitted to trade, on the NSE.
• The company must meet the required rankings for full market capitalisation and average daily turnover.
• The stock should generally have traded on at least 90% of the trading days during the previous six months.
• Its average impact cost should remain within the prescribed limit.
• Its investible weight factor should generally be at least 10%, unless it meets the alternative free-float market capitalisation condition.
• Convertible securities, bonds, warrants and preference shares are not eligible as regular equity constituents.

The NIFTY 500 represents the top 500 companies from this eligible universe based on full market capitalisation.

The index follows a governance structure that includes an index policy committee, an index maintenance sub-committee and board-level oversight.

Also read: Capital Adequacy Ratio 

Stocks represent direct ownership in individual companies. Mutual funds pool money from several investors and invest it across a collection of securities.

Stocks provide direct control over the companies you hold. However, they require research, portfolio management and regular monitoring.

Mutual funds allow you to invest in several securities through a single scheme. Their risks and returns depend on the assets held by the scheme.

The NIFTY 500 provides a broad view of the Indian equity market because it includes companies from different sectors and market-cap segments.

Investors, analysts and fund managers can use the index to:

• Monitor broad market trends
• Compare portfolio and fund performance
• Study movements across different sectors
• Observe how companies of different sizes are performing
• Gain exposure through index mutual funds and ETFs

Historical index values may also help investors study how the market performed during different periods.

However, the NIFTY 500 does not directly measure the condition of the entire economy. It mainly reflects changes in the market prices of the companies included in the index.

The NIFTY 500 tracks 500 eligible companies from large-cap, mid-cap and small-cap segments. Companies are selected based on full market capitalisation, while their index weights are calculated using free-float market capitalisation.
Investors can use the index to understand broad share market movements and compare portfolio performance. They can gain exposure through NIFTY 500 index mutual funds or ETFs. ETFs and individual shares are generally held in a demat account, while index mutual fund units may also be held without one. However, these investments remain subject to market risk.