Demystifying the Significance of the NIFTY 500 Index

Beginners in the stock market must understand how to use the market indices for research and benchmarking. NIFTY 500 is among the most-used market indices in India by investors. It can help find the top stocks in the market belonging to different industry sectors. You can also use these indexes as a benchmark to analyse the performance of your portfolio. Continue reading to understand what the NIFTY 500 index is and what its benefits are.

What is NIFTY 500?

NIFTY 500 is a broad market index comprising stocks of top 500 companies. These companies are listed on the National Stock Exchange (NSE), one of the oldest exchanges for investors in the country. NIFTY 500 tracks the performance of stocks of included companies and represents it as a whole. It acts as a benchmark to measure the performance of the entire stock market in India. Since the index includes both small-cap and large-cap companies, it is a perfect benchmark to gauge the performance of the Indian stock market.

This is among the popular indices in India maintained by NSE. NIFTY 500 is a part of the popular NIFTY range of indices owned by NSE. The index is widely preferred by passive investors in India. Investors try to replicate this index in their portfolios for high returns. You can also invest in the same stocks included in these indexes to earn returns. Financial products associated with the NIFTY 500 index are also available in the market. It is a reliable index that has already breached the 17,000 mark in terms of index value.

How is NIFTY 500 Calculated?

The NIFTY 500 index is calculated based on the free-float market capitalisation of each stock. Before discussing the formula for NIFTY 500 live value, it is essential to understand the concept of the free-float market cap. A company’s market cap is the total value of all shares, including those held by promoters and insiders. However, the shares held by promoters and insiders are not available for trading to the general public. The free-float market cap, which includes shares available for public trading, is evaluated for the same rationale. This free-float factor is used to calculate this live value.

The value of the NIFTY 500 index is calculated relative to a reference period. The base year and base value for this are 1994 and 1000, respectively. All future index values are calculated based on the base year and base value.

You can calculate the free-float market cap to proceed to find the index value. You can multiply the number of outstanding, current share price, and investable weight factor (number of shares available for public trading) to know the free-float market cap. Once you have the free-float market cap, this formula is used to calculate this  index value:

NIFTY 500 Index Value = (Free-Float Market Capitalisation / Base Free-Float Market Cap) * Base Value of NIFTY 500 Index

It is crucial to note that the NIFTY 500 index is reconstituted semi-annually. Stocks that no longer meet the eligibility conditions are removed. The index value might change daily based on the performance of the constituents.

Benefits

Nifty 500 is a long-running and reliable index for investors in the Indian stock market . It had a base value of 1,000 but has now breached the 17,000 mark. It is among the top-performing indices in India to earn high returns. Investors can replicate this index in their portfolio to ensure diversification. They can also benefit from mutual funds and Exchange Traded Fund (ETF) schemes linked to the NIFTY 500 index. These index has shown tremendous growth over the years, thus becoming a reliable tool to earn high returns.

How to Invest in NIFTY 500?

No one can invest directly in a market index, be it the NIFTY 500 or the NIFTY AUTO. A market index is used as a benchmark to compare the performance of your portfolio with that of the markets’. You can also use this index to find the top-performing stocks in the market.

You can try replicating this index in your portfolio. Alternatively, purchase the same stocks included in this index to replicate the exact performance. In such a case, the value of your portfolio will grow with the index. Investors can also choose mutual funds , ETFs, and other instruments linked with the NIFTY 500 index.

You can also find a mutual fund scheme with a portfolio similar to that of this index. Many investors in India prefer ETF schemes tracking the performance of the NIFTY 500 index.

Eligibility Criteria

Before you trade NIFTY 500 stocks, it is essential to understand the eligibility criteria for index constituents. There are certain conditions for companies and their stocks to be included in this index. When a stock no longer meets the eligibility conditions, it can be removed from this index. For the same rationale, this  index is reconstituted and modified on a semi-annual basis. To qualify for this index, a stock must be listed on the NSE. Also, the stock must be ranked in the top 800 stocks based on market cap and daily turnover.

Stocks traded for at least 90% of days in the past six months are considered for the NIFTY 500. Also, stocks ranked in the top 350 based on the full market cap are considered automatically for the index. When a new stock is listed on the NSE, its eligibility is determined based on the data from the past three months. For other stocks, the data for the past six months is used. A total of 500 stocks in the index belonging to 18 different industry sectors are included.

Stocks Vs. Mutual Funds

You might be thinking of purchasing the stocks included in the NIFTY 500 index. Some investors might search for a mutual fund scheme replicating this index in their portfolio. Before you make a decision, here are the differences between stocks and mutual funds:

Stocks  Mutual Funds 

You can get ownership stakes in a company by purchasing its shares.

You can invest in a mutual fund scheme by purchasing its unit from the respective Asset Management Company (AMC).

When you invest in stocks of different companies, you must manage the portfolio on your own.

An experienced individual called the fund manager manages a mutual fund portfolio.

You must conduct investment research to find the top-performing stocks in the market.

Investors depend on the expertise of the fund manager to earn high returns.

You must invest in stocks of multiple companies to build a diversified portfolio.

A mutual fund portfolio is always diversified with multiple assets.

Why is the NIFTY 500 Index So Crucial in Financial Markets?

While there are many other indices, here’s what makes the NIFTY 500 index crucial:

  • The NIFTY 500 index represents around 95% of the total market cap in India. For the same rationale, it can be used to gauge the performance of India’s entire stock market.

  • The NIFTY 500 index includes companies from 18 different sectors, thus offering a complete view of the stock market.

    Also Read: What is NIFTY 50?

  • Many ETFs and mutual funds linked with this index are available in the market.

  • Since the NIFTY 500 index is reconstituted on a semi-annual basis, only relevant stocks remain.

  • Beginners in the stock market can benefit by understanding what the NIFTY 500 is. They can use the index for benchmarking, research, and more.

Conclusion

The NIFTY 500 index is a reliable benchmark for analysing the performance of the Indian stock market. It includes the top 500 companies listed on the NSE that comprise 95% of the market cap. Investors can find mutual funds and ETF schemes linked with this index. Such schemes allow you to invest in a diversified portfolio and earn as the index value progresses.



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