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What is BSE 500 Index Fund?
The BSE 500 Index Fund is a type of index fund that tracks the performance of the top 500 companies listed on the BSE. The BSE 500 Index is a market capitalization-weighted index, which means that companies with higher market capitalization are given more weight in the index. BSE 500 Index reflects the overall performance of the Indian stock market by including companies from various sectors, such as healthcare, technology, finance, consumer goods, and others.
BSE 500 Index is on the basis of free-float market capitalization methodology. Thus, the index considered only the shares available for trading in the market for its calculation.
The selection criteria for stocks to become part of the BSE 500 Index are based on various factors, such as market capitalization, liquidity, trading volume, and other financial parameters. The companies that fulfil the eligibility criteria become part of the BSE 500 Index.
BSE 500 Index Funds to Invest in 2024
| Fund Name | Category | Returns Since Inception |
| ICICI Prudential S&P BSE Sensex Index Fund | US Equity | 13.80% |
| Tata S&P BSE Sensex Index Fund | Large Cap | 15.60% |
| HDFC S&P BSE 500 Index Fund | Index Fund | 13.80% |
| Nippon India Index S&P BSE Fund Sensex Plan | Large Cap | 9.80% |
| UTI S&P BSE Sensex Index Fund | Index Fund | 10.80% |
How Does BSE 500 Index Fund Work?
BSE 500 Index Fund works by investing in the same stocks that are part of the BSE 500 Index. The fund’s portfolio construction is in such a way that it replicates the performance of the index as closely as possible. The fund manager aims to match the returns of the index rather than trying to outperform it.
BSE 500 Index is a market capitalization-weighted index, which means that companies with higher market capitalization are given more weight in the index. The fund manager of the BSE 500 Index Fund invests in the same proportion of stocks as they are part of the underlying index. For example, if a company has a market capitalization of 2% in the BSE 500 Index. The fund manager will invest 2% of the fund’s assets in that company.
Index Fund is a passive investment fund, which means that it follows a buy-and-hold strategy. Unlike active funds, passive funds do not rely on stock-picking or market-timing strategies to generate returns. Instead, passive funds aim to replicate the performance of a benchmark index.
The objective of the BSE 500 Index Fund is to provide investors with returns similar to that of the BSE 500 Index. The fund aims to achieve this objective by keeping the tracking error as low as possible. The tracking error is the difference between the returns of the index fund and the benchmark index. A lower tracking error indicates that the fund is closely tracking the index.
Frequently Asked Questions
BSE500 Index Fund is a good investment option for investors who want to diversify their portfolio and invest in the Indian stock market. However, since these funds invest across the top 500 companies listed on the Bombay Stock Exchange, you need to be well aware of the market risks. Since this is a pure equity scheme, the fund has high volatility. Thus, investors who are comfortable with the risks can consider investing in BSE index funds.
BSE500 Index Funds are equity mutual funds and thus attract capital gains tax as per the investment holding period. If the investment holding period is more than one year, long-term capital gains tax is applicable at the rate of 10% for gains above INR 1,00,000. While short-term capital gains tax is applicable if the holding period is less than one year at the rate of 15%.
The portfolio composition of the BSE500 index funds will be the same as all funds replicate the underlying benchmark index. However, the differentiator will be the tracking error. A fund with the least tracking error is more likely to generate similar returns as the underlying benchmark.
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