Nifty 500 index fund

A Nifty 500 index fund is a passive mutual fund that holds the constituents of the Nifty 500 in their index weights, giving Indian investors broad-market equity exposure across large-cap, mid-cap and small-cap in one holding. The Nifty 500 covers the top 500 NSE-listed companies by full market capitalisation, about 92 per cent of the free-float market cap of the National Stock Exchange as on 30 March 2026. That makes a Nifty 500 fund the broadest single-index passive option in the Indian mutual fund universe, far wider than a Nifty 50 fund (top 50 only) or the segment-specific Nifty Midcap 150 and Nifty Smallcap 250 funds.

For an investor who wants the simplest single “buy the Indian market” holding, a Nifty 500 fund is the closest passive equivalent to the whole NSE equity market. It folds the large-cap top 100, the mid-cap 101 to 250 and the small-cap 251 to 500 into one rules-based portfolio, weighted by free float, at a direct-plan cost of 0.11 to 0.25 per cent as on June 2026. The trade-off against a Nifty 100 index fund is volatility: the mid-cap and small-cap tail makes the Nifty 500 swing harder, so it suits a longer horizon.

Index methodology

The Nifty 500 is constructed and maintained by NSE Indices Limited. NSE Indices launched it on 1 January 1995 with a base value of 1,000, making it the oldest broad-market Nifty index.

• Constituents. The top 500 companies by six-month average full market capitalisation from the eligible NSE universe. Stocks ranked in the top 350 by full market cap are included automatically; those ranked 351 and below must also clear liquidity and trading-frequency filters.
• Coverage. About 92.04 per cent of NSE free-float market capitalisation as on 30 March 2026. Sources that quote roughly 96 per cent are measuring full market cap rather than free float; the two figures describe different bases.
• Weighting. Free-float market-cap weighted, so a constituent’s weight reflects only publicly tradable shares, not promoter or strategic holdings.
• Segment split. The index is divided into the top 100 (large-cap, the Nifty 100), 101 to 250 (mid-cap, the Nifty Midcap 150) and 251 to 500 (small-cap, the Nifty Smallcap 250). This three-tier split mirrors SEBI ’s market-cap categorisation, fixed in the circular of 6 October 2017.
• Reconstitution. Semi-annual, with cut-off data taken to the last trading day of January and July. The Nifty 500 also serves as the parent universe for the Nifty sectoral and industry indices.

Sectorally, financial services dominates, followed by information technology, fast-moving consumer goods , energy, automobiles, capital goods and healthcare. Because the index reaches down to the small-cap segment, it carries a longer tail of industrial, chemical, pharmaceutical and consumer names than a large-cap index, which is the source of both its wider diversification and its higher volatility.

Price return versus total return

A Nifty 500 fund tracks the total return version of the index. The price return index (PRI) counts only price change; the total return index (TRI) adds dividends paid by the 500 constituents, reinvested into the index. The Nifty 500 has historically yielded around 1.0 to 1.1 per cent in dividends, so the TRI runs ahead of the PRI by roughly that much each year, and the gap compounds.

SEBI mandated TRI benchmarking for mutual funds from 1 February 2018, which closed an old gap: before that, active funds measured against the PRI could look like they beat the index simply by pocketing the dividends the PRI ignored. Compare a Nifty 500 fund against the Nifty 500 TRI, not the headline PRI level.

Available schemes: TER and AUM

The plain Nifty 500 segment is young. Motilal Oswal ran the only large fund for years; DSP and ICICI Prudential entered far more recently, so their assets are still small. The funds track the same index, so they differ on cost, tracking quality and age, not on holdings. Total expense ratios and AUM are direct-plan figures from the funds’ published monthly disclosures; each AMC’s factsheet is the authoritative source and figures change month to month.

Motilal Oswal is the clear incumbent: lowest fee, largest assets by a wide margin and a six-year live record through one full market cycle. ICICI Prudential and DSP are recent launches, so their funds carry shorter track records and thin assets, which can mean choppier tracking until they scale. The DSP fund at Rs 14 crore launched in January 2026 and has only a few months of live data.

Funds with similar names track different rules and are not plain Nifty 500 funds. The HDFC BSE 500 Index Fund tracks the BSE 500, a different index, not the Nifty 500. The HDFC Nifty500 Multicap 50:25:25 Index Fund imposes a fixed large-mid-small split rather than free-float weights. The DSP Nifty 500 Flexicap Quality 30 and Motilal Oswal Nifty 500 Momentum 50 funds are factor strategies drawn from the Nifty 500 universe, not replicas of it.

How to choose a Nifty 500 index fund

Because every fund holds the identical 500 stocks in identical weights, selection is a matter of measurable inputs, not a manager view.

Start with total expense ratio. It is the only certain recurring cost and it compounds across a long hold. As on June 2026 the funds spanned 0.11 to 0.25 per cent, so the cheapest kept about 14 basis points a year more of the index return than the dearest.

Then weigh tracking error against fund age. A Nifty 500 fund must hold up to 500 stocks, including illiquid small-caps, so faithful replication is harder than for a Nifty 50 fund and tracking error tends to run wider. The small-cap tail is where execution slippage shows up at reconstitution. A fund with more assets and a longer record usually tracks the index more cleanly through index changes, which favours the established Motilal Oswal fund over the two recent entrants until they build a track record.

Prefer the direct plan and the growth option. The direct plan strips distributor commission, which is why the table shows direct-plan TERs; the regular plan of the same scheme can charge 0.7 per cent more for an identical portfolio. The growth option compounds inside the fund rather than paying out a taxable income distribution. The full checklist sits in how to select an index fund .

What the segment weights actually look like

A Nifty 500 fund holds 500 stocks, but the count is misleading because the index is free-float market-cap weighted. The top 100 large-caps carry roughly three-quarters of the index by weight, the mid-cap 101 to 250 band roughly a sixth, and the small-cap 251 to 500 band the remainder, even though small-caps make up half the names. The 500th-ranked company enters at a fraction of a per cent. So the fund’s return is driven mostly by the same large-caps that anchor a Nifty 100 fund, with the mid-cap and small-cap tail adding a thinner layer of both extra return potential and extra volatility.

That distribution sets expectations correctly. A Nifty 500 fund is not an equal bet across capitalisations; it is a large-cap-dominated fund with a long tail. An investor who wants a genuinely heavier mid-cap or small-cap tilt cannot get it from a single Nifty 500 fund and instead pairs a Nifty 100 index fund with a Nifty Midcap 150 and a Nifty Smallcap 250 fund in deliberately chosen weights. The Nifty 500 wins on simplicity and on capturing the tail at market weight; the multi-fund route wins on control over the tilt.

What the TER gap costs over time

The fee looks trivial in one year and compounds into a large number over a holding period, because it is deducted from the same balance the return grows. Take a Rs 10 lakh lump sum held 20 years at a 10 per cent gross index return. At a 0.11 per cent TER the net return is 9.89 per cent and the balance ends near Rs 65.5 lakh. At a 0.25 per cent TER the net return falls to 9.75 per cent and the balance ends near Rs 63.8 lakh. The 14 basis-point fee difference costs over Rs 1.7 lakh across the term, on funds holding the identical 500 stocks.

That is why TER leads the selection among Nifty 500 funds just as it does among Nifty 100 funds. The catch in this segment is that the cheapest fund and the most established fund are currently the same fund, so there is no trade-off to weigh: the Motilal Oswal fund is both the lowest-cost and the longest-running plain option. The newer ICICI Prudential fund at 0.25 per cent costs more than twice as much and carries a shorter record.

The young-segment caveat

Two of the three plain Nifty 500 funds launched within the last 18 months, and that matters beyond the thin assets. A fund’s first full market cycle is where its replication discipline is tested: how it handles a sharp drawdown, a wave of redemptions and the small-cap reconstitution that follows. A six-year-old fund has lived through that; a fund launched in December 2024 or January 2026 has not. Until the newer funds build a multi-year tracking record, an investor leaning on the lowest possible fee should weigh that record gap against the few basis points of fee, and the established fund usually wins that comparison.

The small-cap tail is the specific stress point. Replicating 250 small-cap names, some thinly traded, is harder than replicating 50 liquid large-caps, so a Nifty 500 fund’s tracking error structurally runs wider than a Nifty 50 fund’s, and the slippage concentrates around the July and January reconstitutions when small-cap entrants and exits trade. A larger, older fund with more assets absorbs those trades with less market impact, which is the practical edge of scale in this segment.

Comparison with other index funds

A single Nifty 500 fund replaces a stack of separate large-cap, mid-cap and small-cap funds, but it fixes the weighting to free-float market cap. Because large-caps carry most of the market’s capitalisation, the Nifty 500 is still about three-quarters large-cap by weight despite holding 500 names. An investor who wants more mid-cap and small-cap tilt than that holds a Nifty 100 fund alongside a Nifty Midcap 150 and a Nifty Smallcap 250 fund in chosen proportions, rather than a single Nifty 500 fund.

Versus an active diversified fund

The case for the passive route rests on cost and the active record. The SPIVA India Year-End 2024 scorecard found 93 per cent of actively managed Indian Equity Large-Cap funds underperformed the S&P India LargeMidCap benchmark over five years. A Nifty 500 fund at 0.11 per cent gives broader exposure than most active diversified funds at a fraction of the fee. The full evidence sits in active equity versus passive equity in India and large-cap fund versus index fund .

Use within a portfolio

A Nifty 500 fund works as a one-fund equity core: a single holding that captures almost the entire investable NSE market across capitalisations, at low cost and full investment. It removes the need to size separate large-, mid- and small-cap allocations, since the index already holds them in free-float proportion.

The fund supports standard SIP , SWP , STP and lump-sum routes. Its breadth makes it well suited to long-horizon SIP accumulation, where rupee-cost averaging smooths the mid-cap and small-cap volatility that comes with the wider net. Investors who want a steadier ride hold a Nifty 100 index fund instead and add the mid-and-small-cap segments deliberately.

Tax treatment

A Nifty 500 index fund is equity-oriented because it holds more than 65 per cent in Indian equity, so equity capital-gains rules apply.

• Long-term capital gains, on units held more than 12 months, are taxed at 12.5 per cent on gains above the Rs 1.25 lakh annual exemption under Section 112A .
• Short-term capital gains, on units held 12 months or less, are taxed at 20 per cent under Section 111A , the rate effective from 23 July 2024.

These rates apply for FY2025-26. Switching from one Nifty 500 fund to a cheaper one is a redemption and a fresh purchase for tax, so it can trigger a taxable gain even though the underlying exposure is unchanged.

For a SIP investor each instalment carries its own holding-period clock, and a redemption draws down the oldest units first under the first-in, first-out rule. Units held more than 12 months attract the 12.5 per cent long-term rate; units bought within the last year are short-term at 20 per cent. The first-in, first-out order usually pulls the longest-held units out first, which works in the investor’s favour on a partial redemption from a long-running SIP.

Tracking difference versus tracking error

The two replication metrics measure different things. Tracking error is the volatility of the daily return gap between fund and index, how jumpy the tracking is. Tracking difference is the cumulative return the fund actually gave up over a period. For a Nifty 500 fund, the wide universe and the illiquid small-cap tail tend to push both figures higher than for a Nifty 50 fund, so an investor should not expect Nifty 50-level tightness here.

The useful test is whether the tracking difference stays close to the fund’s TER. If a Nifty 500 fund lags the index by far more than its fee, it is leaking return through small-cap execution and reconstitution slippage, and the lower headline TER does not make up for it. AMC factsheets publish both figures monthly, computed by independent agencies, which is the primary number to check before committing rather than the marketing headline.

See also

• Mutual funds in India
• Index funds in India
• Nifty 500 TRI
• Nifty 50 index fund
• Nifty 100 index fund
• Nifty Next 50 index fund
• Nifty Midcap 150 index fund
• Nifty Smallcap 250 index fund
• Nifty LargeMidcap 250 index fund
• Sensex index fund
• ETFs in India
• Equity ETF in India
• Nifty 50 ETF
• Nifty BeES
• Active equity versus passive equity in India
• Large-cap fund versus index fund
• Large-cap mutual fund in India
• Index fund versus ETF in India
• Mutual fund versus ETF in India
• Tracking error in index funds
• How to select an index fund
• Total expense ratio
• TER regulation slabs
• Equity mutual fund taxation in India
• Section 112A
• Section 111A
• Nifty 50 TRI
• SIP
• SWP
• STP
• NAV
• SEBI investment management department
• AMFI
• ICICI Prudential Mutual Fund

External references

• NSE Indices
• Nifty 500 index, NSE
• SEBI
• AMFI India
• S&P Dow Jones Indices, SPIVA India
• Income Tax Department

References

1. NSE Indices Limited, Nifty 500 index factsheet and methodology, free-float coverage as on 30 March 2026; index launched 1 January 1995.
2. SEBI circular SEBI/HO/IMD/DF3/CIR/P/2017/114, Categorisation and rationalisation of mutual fund schemes, 6 October 2017.
3. SEBI circular on Total Return Index benchmarking, effective 1 February 2018.
4. Scheme factsheets and total expense ratio disclosures published by Motilal Oswal, DSP and ICICI Prudential Mutual Fund for their Nifty 500 Index Funds; and Association of Mutual Funds in India (AMFI) monthly average AUM data, 2026.
5. S&P Dow Jones Indices, SPIVA India Year-End 2024 Scorecard.
6. Income Tax Act 1961, Sections 111A and 112A, rates effective 23 July 2024.