As India’s share market continues to evolve, more investors are shifting their focus from traditional large-cap stocks to broader indices that provide greater diversification and growth potential. One such index that has gained considerable attention is the NIFTY500 stocks list. Representing nearly the entire market capitalisation of the National Stock Exchange (NSE), the NIFTY500 serves as a benchmark for those looking to gain access to a well-balanced portfolio across industries.
With the increasing participation of retail investors through Demat accounts and lumpsum investments, understanding the structure and purpose of the NIFTY500 stocks list has become more important than ever. This blog explores the composition, selection methodology, and overall relevance of the NIFTY500 in today’s share market.
What is the NIFTY500 stocks list?
The NIFTY500 is a broad-based index representing about 92.29% of the free float market capitalisation of the stocks listed on the NSE. Essentially, this index covers companies from across 72 different industries. So, if you’re investing in the NIFTY500, you’re not betting on just one sector; you’re spreading your exposure across a wide range of industries.
The idea behind the NIFTY500 stocks list is simple: capture the performance of the Indian share market as a whole, not just a slice of it. While indices like Nifty50 focus on the top 50 companies, the NIFTY500 takes a more comprehensive view.
How are stocks selected in the NIFTY500 stocks list?
The inclusion criteria for the NIFTY500 are quite strict. A company must meet specific liquidity and trading frequency requirements. It should also have a positive net worth and rank among the top 500 companies by full market capitalisation. This ensures that the companies in the NIFTY500 stocks list are not only big but also actively traded and financially stable.
What’s interesting is how this list is periodically updated. So, if a company drops in performance or no longer meets the criteria, it can be removed from the index. This means the list is dynamic and reflects the current state of the share market.
Why do investors track the NIFTY500 stocks list?
For Indian investors, especially those managing their portfolios through SIPs or lumpsum routes, the NIFTY500 stocks list is a solid benchmark. Here’s why:
- Diversification: Since the list spans multiple sectors, investors automatically get exposure to various industries. This reduces risk compared to investing in a single sector or stock.
- Market representation: The NIFTY500 covers a majority of the total market capitalisation. That means when the index moves, it often reflects the actual direction of the broader share market.
- Investment opportunities: While indices like the Nifty50 are dominated by large-cap stocks, the NIFTY500 offers a mix of large, mid, and small-cap companies. This opens the door to faster-growing businesses that aren’t in the top 50 but have strong growth potential.
How can one invest in the NIFTY500?
There are several ways to tap into the NIFTY500 stocks list without buying all 500 individual shares. Here’s how most Indian investors do it:
- Index funds: Some mutual fund houses offer index funds that track the NIFTY500. These passively managed funds aim to match the performance of a specific index.
- ETFs (Exchange Traded Funds): ETFs based on the NIFTY500 are available for trading on the stock exchange, just like regular shares. They provide liquidity and can be bought or sold anytime during market hours.
- Direct equity: If you’re a DIY investor with a Demat account and a knack for research, you can selectively pick stocks from the NIFTY500 stocks list to build a custom portfolio.
It’s important to note that regardless of your investment method, an SIP or lumpsum, you need to align it with your risk appetite, investment goals, and time horizon.
Performance and volatility: What to expect
Because the NIFTY500 includes companies from every corner of the share market, it tends to be more stable than niche indices. That said, it does mirror the economic landscape. During high-growth phases, the index has historically offered solid returns.
However, like all investments, the NIFTY500 isn’t immune to volatility. In periods of economic slowdown or market corrections, even this broad-based index can face dips. That’s why it’s crucial to stay invested for the long-term.
Things to keep in mind while investing using the NIFTY500 stocks list
Here are a few key points to keep in mind while investing in India’s dynamic share market.
- Costs: While index funds and ETFs tracking the NIFTY500 are cost-efficient, always check the expense ratio. Lower is better.
- Fund manager bias: If you’re investing through actively managed mutual funds that reference the NIFTY500, be aware that the fund manager’s decisions could influence returns.
- Concentration: Even though the NIFTY500 is diversified, some sectors like banking, IT, and FMCG tend to carry more weight. Keep an eye on sector exposure.
- Periodic rebalancing: The index updates periodically. This means that your fund or ETF might reshuffle holdings over time, which could affect performance.
Building a balanced portfolio with the NIFTY500 stocks list
Whether you’re setting up an SIP for your long-term goals or planning a lumpsum investment, the NIFTY500 stocks list offers a window into India’s economic engine. With its vast coverage, dynamic selection, and ability to reflect the broader share market, it serves as a powerful reference for informed investing.
For anyone looking to build a portfolio that grows with India’s economy, understanding how the NIFTY500 works can be a smart move. But always do your due diligence, consult with a financial advisor if needed, and invest as per your individual financial goals.
