We have theoretically worked out the effects of thermal indexing in cholesteric liquid crystals. We find that for light propagation parallel to the twist axis in a right (left) handed cholesteric, the right (left) circularly polarized state exhibits a large nonlinear optical (NLO) coefficient of the order of 10(-4)cm(2)/W. On the other hand the NLO coefficient for the left (right) circularly polarized state is of the order of 10(-6) cm(2)/W. We find that in both the cases the NLO coefficient is positive or negative depending upon whether the pitch of cholesteric increases or decreases with laser intensity. Further, due to variation in the average refractive index, the NLO coefficient for the right (left) circularly polarized state changes sign as we approach the Bragg band. In the case of laser beams with a Gaussian intensity profile we get self-focusing, self-divergence and self phase modulation. In the Mauguin limit we find a defect structure with a periodic array of disclination loops within the Gaussian beam.