BSE 500

What is BSE 500?

The S&P BSE 500, also known as the BSE 500, is a stock market index that comprises the top 500 companies listed on the Bombay Stock Exchange based on various factors such as market capitalization, liquidity, and trading activity.

The BSE 500 includes companies from all the major sectors of the economy and captures almost 95% of the total market capitalisation of all listed companies on the BSE, making it one of the broadest equity indices in India.

By tracking the index, investors can get a comprehensive view of the performance of the Indian stock market as a whole. In fact, the S&P BSE 500 is often used by investors, fund managers and analysts to gauge the performance of their portfolios, track market trends and make investment decisions.

The top five sectors that make up the S&P BSE 500 index include finance, information technology, oil & gas, FMCG and transport equipment. The top 10 constituents by index weight, meanwhile, are as follows:

Note: The data is as of April 03, 2024.

The composition of the BSE 500 is periodically reviewed and rebalanced twice each year during the months of June and December to ensure that the index stays relevant and accurate. Furthermore, companies may be added to or removed from the index based on changes in their market capitalization, trading volume and other criteria specified by the BSE. This dynamic nature allows the S&P BSE 500 to adapt to shifts in the market landscape and maintain its position as a leading benchmark index.

How is the BSE 500 Calculated?

The BSE 500, like many other stock market indices, is calculated using the free-float market capitalisation-weighted method. This means that the index's value is determined based on the sum of the market capitalization of all of its constituent companies adjusted for free float.

Here’s a quick overview of how the value of the S&P BSE 500 is calculated.

1. Constituent Selection

For a stock to be eligible for inclusion in the BSE 500 index, it must satisfy the below-mentioned criteria.

- The stock must feature in the S&P BSE AllCap index.

- The stock must have been traded for at least 80% of the total trading days during the three-month reference period.

Once the eligible stock pool is established, the index selection committee ranks them on the basis of average float-adjusted market cap, average total market cap and average value traded over a period of six months. The top 500 stocks from the pool are included in the S&P BSE 500.

2. Calculation of Free-Float Market Capitalisation

Then, the free-float market capitalisation of each constituent stock of the BSE 500 index is calculated using the following formulas.

Market Capitalisation = Current Market Price * Number of Shares Freely Available for Trading

Free-Float Market Capitalisation = Market Capitalisation x Free-Float Factor

3. Calculation of Index Value

Finally, the index value is calculated using the following formula.

S&P BSE 500 Value = [(Free-Float Market Capitalisation of All Constituents * Base Index Value) ÷ Base Market Capitalisation]

How can you invest in the BSE 500?

Since the BSE 500 is an index, you cannot invest in it directly. However, you can gain exposure to the index indirectly by investing in an S&P BSE 500 index mutual fund.

An index fund is a type of mutual fund that aims to replicate the performance of a specific market index. It does this by investing in the constituents in the same proportion and weightage as the index. So, when you invest in a BSE 500 fund, you can essentially gain exposure to the market index. One of the primary advantages of investing in such a fund is that it is passively managed and has very low expense ratios.

Alternatively, you may also choose to buy individual stocks of companies listed in the BSE 500. However, this approach requires researching and selecting specific companies based on their fundamentals, growth prospects and other investment criteria. Direct stock purchases allow for more control over the portfolio but may lack diversification compared to investing in an S&P BSE 500 index fund.

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