NIFTY 500 index fund
A NIFTY 500 index fund tracks the NIFTY 500 Total Returns Index, providing Indian investors with broad-market passive equity exposure covering approximately 96% of NSE-listed market capitalisation across large-cap (top 100), mid-cap (101-250), and small-cap (251-500) segments. The fund is the broadest single-index passive option available in the Indian mutual fund universe, contrasting with the narrower NIFTY 50 (top 50 only) and the segment-specific NIFTY Midcap 150 / NIFTY Smallcap 250 index funds.
For Indian retail investors seeking the simplest “buy the Indian market” passive option, a NIFTY 500 index fund is the closest single-fund equivalent to the broad Indian equity market.
Index methodology
NIFTY 500 is constructed and maintained by NSE Indices:
- Constituents: Top 500 NSE-listed companies by free-float market capitalisation.
- Coverage: Approximately 96% of NSE-listed market cap.
- Sectoral diversification: Across financials, IT, consumer, energy, healthcare, industrial, materials, telecom, utilities, real estate.
- Rebalancing: Semi-annual constituent review with periodic adjustments for corporate actions.
The index reads as a “total Indian equity market” proxy more closely than NIFTY 50.
Scheme structure
NIFTY 500 index funds are structured as passive mutual fund schemes:
- Investment objective: Replicate NIFTY 500 TRI returns minus TER.
- Portfolio: Holds NIFTY 500 constituents in their index weights.
- Rebalancing: Mirrors index rebalancing.
- Tracking error: Typically 0.05 to 0.15% per annum (low).
TER
NIFTY 500 index funds typically charge:
- TER: 0.10 to 0.35% (very low, passive economics).
- Comparison with active broad-market funds: 1.5 to 2.0% TER, materially higher.
The TER differential compounds significantly over long-term holds, advantaging the passive vehicle.
Comparison with other index funds
| Index | Constituents | Tracking-fund TER (approx) | Coverage |
|---|---|---|---|
| NIFTY 50 | Top 50 | 0.05 to 0.20% | ~67% of NSE market cap |
| NIFTY Next 50 | 51 to 100 | 0.10 to 0.30% | ~14% of NSE market cap |
| NIFTY 100 | Top 100 | 0.15 to 0.30% | ~80% of NSE market cap |
| NIFTY 500 | Top 500 | 0.10 to 0.35% | ~96% of NSE market cap |
| NIFTY Midcap 150 | 101-250 | 0.20 to 0.40% | Mid-cap segment only |
| NIFTY Smallcap 250 | 251-500 | 0.30 to 0.55% | Small-cap segment only |
Leading NIFTY 500 index schemes (illustrative)
- ICICI Prudential NIFTY 500 Index Fund.
- HDFC NIFTY 500 Index Fund.
- Motilal Oswal Nifty 500 Index Fund.
- DSP NIFTY 500 Index Fund.
- Axis NIFTY 500 Index Fund.
Tax treatment
Equity-oriented (>65% equity), so:
- LTCG (>12 months): 12.5% under Section 112A , above Rs 1.25 lakh exemption.
- STCG (≤12 months): 20% under Section 111A .
- Per equity mutual fund taxation in India .
Role in portfolio construction
NIFTY 500 index funds work well as:
- Core equity holding: 50 to 80% of equity portfolio for passive-leaning investors.
- One-fund Indian equity solution: Single fund covers large, mid, and small-cap segments.
- Long-term wealth building: Low TER + market returns over 15-20+ year horizons.
For investors preferring more concentrated large-cap exposure or specific cap-segment tilts, complementary funds (NIFTY 50, NIFTY Midcap 150, etc.) can be combined.
See also
- Mutual funds in India
- NIFTY 500 TRI
- NIFTY 50 index fund
- NIFTY Next 50 index fund
- NIFTY Midcap 150 index fund
- NIFTY Smallcap 250 index fund
- SENSEX index fund
- Equity ETF (India)
- Index funds (India)
- Active vs passive equity India
- Total Expense Ratio (TER)
- Section 112A
- Section 111A
- Equity mutual fund taxation in India
- AMFI
- SEBI
External references
References
- NSE Indices NIFTY 500 methodology documentation.
- SEBI October 2017 categorisation circular.
- AMFI Best Practice Guidelines.