A Nifty 500 index fund is a mutual fund that puts money into the 500 biggest companies on the National Stock Exchange in the same mix as the Nifty 500 index. The Nifty 500 index covers medium and small companies so the Nifty 500 index fund gives you exposure to the whole market not only the biggest companies.
Nifty 500 index funds work by copying the Nifty 500 index than choosing individual stocks. This keeps costs low. Removes the judgment of a fund manager from the Nifty 500 index fund. The trade‑off is that the Nifty 500 index fund goes up and down with the market. The mid and small companies in the Nifty 500 index also make the Nifty 500 index fund more volatile than a fund that holds large companies.
What the Nifty 500 index contains
| Segment | Companies | Share of the index (September 2025) |
|---|---|---|
| Large cap | The top 100 companies by market capitalization in the Nifty 500 index | About 70.8% |
| Mid cap | The next 150 companies in the Nifty 500 index | About 18.8% |
| Small cap | The next 250 companies in the Nifty 500 index | 10.4% |
The Nifty 500 index covers about 91% of the total market capitalization and 93% of the free‑float market capitalization of the stocks on the NSE. Large companies still carry most of the weight although the mid and small segments have grown over time.
How the index is built and maintained
| Feature | How it works |
|---|---|
| Selection | The Nifty 500 index picks the top 500 stocks by market capitalization from the eligible universe using a six‑month average. |
| Weighting | Free‑float market capitalization, which counts only the shares available for public trading. |
| Review | Every six months, in March and September. |
| Funds role | The fund. Sells to match changes in the index and tracks it as closely as costs allow. |
Benefits of a Nifty 500 index fund
| Benefit | Why it matters |
|---|---|
| Broad diversification | A Nifty 500 index fund holds hundreds of companies across sectors and sizes. |
| Low cost | A Nifty 500 index fund usually has an expense ratio than an active fund and the savings add up over years. |
| Transparent | The holdings of a Nifty 500 index fund follow a published index methodology. |
| Rebalancing | When a company grows into the 500 it enters the Nifty 500 index and when it falls out it leaves. |
| Simple to hold | A Nifty 500 index fund fits a systematic investment plan because you do not need to choose stocks or time the market. |
Risks of a Nifty 500 index fund
| Risk | What it means |
|---|---|
| Market risk | A Nifty 500 index fund falls when the market falls and it has no cushion from a fund manager’s judgment. |
| Higher volatility than large‑cap funds | The mid and small companies in the Nifty 500 index can swing more than companies. |
| Market‑cap weighting | The biggest companies carry the weights so a Nifty 500 index fund is more exposed to them than the number 500 implies. |
| Tracking error | A Nifty 500 index fund’s returns can differ slightly from the Nifty 500 index because of costs and cash holdings. |
| No protection in falling markets | A Nifty 500 index fund holds all 500 stocks regardless of their quality. |
Nifty 500 compared with Nifty 50
| Feature | Nifty 50 index fund | Nifty 500 index fund |
|---|---|---|
| Companies | Nifty 50 index fund holds 50 of the largest companies. | Nifty 500 index fund holds 500 companies across mid and small segments. |
| Diversification | Concentrated in large companies. | Broader, including small companies. |
| Volatility | Generally lower. | Generally higher because of small companies. |
| Growth potential | Tied to the largest companies. | Includes the segments with room to grow with no guarantee of returns. |
Tax on a Nifty 500 index fund
| Holding period | Tax on the gain |
|---|---|
| 12 months or less | 20% short‑term capital gains tax |
| More than 12 months | 12.5% on gains above ₹1.25 lakh in a financial year |
Who may consider a Nifty 500 index fund
A 500 index fund suits investors who have a long horizon, usually five to seven years or more. They want market exposure at a low cost and can tolerate falls of 30% or more in a bad market. A 500 index fund is less suited to money that is needed in a few years and to investors who want protection in a falling market because the Nifty 500 index fund follows the index no matter what the market does.
What investors should take from this
A Nifty 500 index fund is a way to hold the Indian equity market. The large companies provide most of the weight and the mid and small companies add growth and volatility. The expense ratio, the tracking error and the share of the portfolio that a Nifty 500 index fund occupies matter more, than the fund’s name.
Kuvera offers mutual funds, including index funds. The factsheet of any Nifty 500 index fund lists its expense ratio, tracking error and top holdings.
Asked Questions
1. What is a Nifty 500 index fund?
A Nifty 500 index fund is a fund that puts money into the 500 companies that make up the Nifty 500 index matching the same weight each company has in the index.
2. How is the Nifty 500 index weighted?
The Nifty 500 index is weighted by free‑float market capitalization, which means that bigger companies carry weight.
3. How often does the Nifty 500 change?
The Nifty 500 is updated twice a year in March and September.
4. Is a Nifty 500 index fund than a Nifty 50 index fund?
A Nifty 500 index fund usually has ups and downs because it includes medium and small companies. Both types of funds still face market risk.
5. How is a Nifty 500 index fund taxed?
A Nifty 500 index fund is taxed like an equity fund. If you keep the units for a year or less the gains are taxed at 20%. If you keep them longer gains over ₹1.25 lakh, in a year are taxed at 12.5%.
Mutual fund investments carry market risk. Please read all scheme documents carefully. The tax rules stated here are current. May change in the future.
