Whenever markets correct for a protracted period – like they did from September 2024 to early April 2025 – and stage a sharp recovery, investors may not find it easy to decide the best course forward for their portfolios. There were many such instances of falls and quick rallies in the past led by some pockets of the market.
When investors are unable to decide on the right segment for taking exposure, one healthy option to consider would be to look at the entire market. This means investing in the broader market BSE 500 for taking exposure to an extremely largebasket of stocks.
The index is a robust mix of large, mid and small-cap stocks, spread over a huge number of sectors that are representative of a large segment of the Indian economy.
For investors, the ETF route is ideal for taking exposure to the BSE 500 index.
Now, the BSE 500 index has 501 listed companies. The index is derived from the BSE AllCap based on average daily market capitalisation and other criteria. The BSE 500 commands a total market capitalization of close to Rs 392trillion (as of May 15, 2025). On free-float market capitalization, the figure is Rs 186 trillion. As many as 12 broad segments get represented in the BSE 500. The index is rebalanced in June and December every year.
Gaining from the entire market
Investors gain from multiple factors that go in favour of broader index investing.
Represents almost the entire market: The market capitalization of all BSE-listed companies is Rs 440 trillion(as of May 15, 2025). Now, the BSE 500 index represents over 89 per cent of the total market’s capitalization. Therefore, a single index helps you capture the trend of the overall market.
Multi-cap exposure: As the index has 501 companies, investors are able to gain exposure to 100 large cap, 150 midcap and 250 small cap stocks from the respective indices in different proportions. This mix makes for a multi-cap portfolio via a single index and a product. Large firms with healthy cashflows and strong balance sheets, midcaps with robust growth potential and small caps that span many emerging and existing areas with scope for enormous expansion.
Portfolio diversification: A 500-stock index is by itself a great source of diversification. With representation of 12 different segments – each of which has many sub-sectors – there isconsiderable balance to the portfolio.
A mix of cyclical, defensive, evergreen, rate-sensitive sectors would give a well-rounded portfolio holding. So, when somesectors underperform, others are likely to do well and help maintain reasonable portfolio balance.
Passive benefit: Investing in the BSE 500 via the exchange traded fund (ETF) route is ideal for investors as it would give exposure to 500 stocks via a single product, that too at a low cost as the expense ratios are modest. Since the ETF is listed in the exchanges, trading in the units would be smooth with sufficient liquidity being available. There is no fund manager risk.
Thus, investors looking to diversify via the passive route, in addition to their active investments, the BSE 500 ETF offers a healthy option. Taking help from your financial advisor or mutual fund distributor would provide necessary clarity.
– Chintan Haria, Principal – Investment Strategy at ICICI Prudential AMC