Though direct investing is not for everyone, getting into the stock market is easy these days given the availability of mutual funds and index funds that allow you to invest indirectly. India is a shining example where newbie retail investors are making a beeline for mutual fund investment products such as index funds. For perspective, the Indian mutual fund industry’s Average Assets Under Management (AAUM) stood at ₹61.33 lakh crore (₹61.33 trillion) in June 2024. The phenomenal growth in mutual fund investments can be attributed to an increase in awareness about the product as well as the easy availability of products such as index funds in India.
Let’s understand what an index fund is before we discuss the top 10 best index funds in India.
What are index funds?
Index funds are a type of mutual fund or exchange-traded fund (ETF) designed to replicate the performance of indexes such as Nifty 50, BankNifty, and BSE Sensex.
Index funds hold the same stocks as the index they track without actively buying or selling securities. The expense ratio for index funds is low as they are passively managed and follow the index composition. This makes them an efficient investment alternative.
Investing in index funds is recommended for newbie investors as they replicate the market returns and pose medium risk compared to other actively managed mutual funds.
Best index funds to invest
Here are India’s top 10 best index funds with the highest assets under management.
| Number | Scheme Name | AUM (as on Aug 6, 2024) | 3yr CAGR | 1yr CAGR |
| 1 | UTI Nifty 50 Index Fund | ₹18,345.17 Cr | 14.91% | 24.37% |
| 2 | HDFC Index Nifty 50 Plan | ₹16,592.31 Cr | 14.88% | 24.33% |
| 3 | ICICI Prudential Nifty 50 Index Fund | ₹9,800.42 Cr | 14.88% | 24.31% |
| 4 | SBI Nifty Index Fund | ₹7,940.91 Cr | 14.91% | 24.38% |
| 5 | HDFC Index Fund BSE Sensex Plan | ₹7,365.30 Cr. | 14.17% | 21.00% |
| 6 | UTI Nifty200 Momentum 30 Index Fund | ₹6,971.45 Cr. | 22.9% | 60.06% |
| 7 | ICICI Prudential Nifty Next 50 Index Fund | ₹5,844.95 Cr. | 21.89% | 58.88% |
| 8 | UTI Nifty Next 50 Index Fund | ₹4,359.78 Cr. | 21.89% | 58.86% |
| 9 | Navi Nifty 50 Index Fund | ₹2,141.72 Cr. | 14.97% | 24.40% |
| 10 | Nippon India Index Fund – Nifty 50 Plan | ₹1,795.92 Cr. | 14.87% | 24.32% |
Best performing index funds for SIP
Here are the best-performing index funds for SIP in India.
1. UTI Nifty 50 Index Fund
The UTI Nifty 50 is a passively managed index fund that seeks to replicate the underlying index. It aims to replicate the returns of the index subject to expenses and tracking errors. The fund started in March 2000 and has a 7-year annualized return of 14.64%.
2. HDFC Index Nifty 50 Plan
The Nifty 50 is a broad-based index comprising 50 large and liquid blue-chip stocks across multiple sectors. The objective of the HDFC Index Nifty 50 Plan is to mirror the index return subject to expenses and tracking errors. The fund was launched in July 2002.
3. ICICI Prudential Nifty 50 Index Fund
The ICICI Prudential Nifty 50 Index Fund is an open-ended scheme with a track record of over 22 years. The objective of the scheme is to track the performance of the NAV of the plan to Nifty 50 over the same period, barring expenses and trading errors.
4. SBI Nifty Index Fund
The SBI Nifty Index Fund is an open-ended scheme that tracks the performance of the benchmark index Nifty 50. It is a passively managed fund meaning the fund manager doesn’t actively select the stocks, keeping the cost of buying and holding the fund quite low compared to actively managed funds. The fund was launched in January 2013.
5. HDFC Index Fund BSE Sensex Plan
This is an open-ended index mutual fund tracking the BSE benchmark index, Sensex. The fund has a diversified portfolio of 30 stocks which constitute the index and aims to replicate the returns of Sensex over time. This is a passively managed fund.
6. UTI Nifty200 Momentum 30 Index Fund
This is an open-ended scheme replicating the Nifty200 Momentum 30 Index Fund. This is also the first scheme in our top 10 best index mutual funds list which does not track a broader index such as the Nifty 50 or Sensex.
The NIFTY 200 Momentum 30 Index is based on the “Momentum” within the large- and mid-cap universe. The fund passively tracks the index to replicate its returns barring the tracking errors.
7. ICICI Prudential Nifty Next 50 Index Fund
This is an open-ended scheme tracking the Nifty Next 50 index to replicate the index return. The fund was launched in June 2010.
8. UTI Nifty Next 50 Index Fund
This is a passively managed index mutual fund to generate returns in line with the underlying index subject to expenses and tracking errors. The Nifty Next 50 represents the next rung of liquid securities after the NIFTY 50. It consists of 50 companies representing approximately 10% of the traded value of all stocks on the National Stock Exchange of India.
9. Navi Nifty 50 Index Fund
The Navi Nifty 50 Index Fund is a passively managed, open-ended, index mutual fund scheme launched in July 2021.
10. Nippon India Index Fund – Nifty 50 Plan
This is an open-ended index mutual fund tracking the Nifty 50 index to replicate the index return. The scheme was launched in September 2010.
List of different types of index funds to invest
The benchmark index followed by the fund and the passive management style are the two major factors that differentiate an index mutual fund from other mutual fund schemes. We have listed the top 10 best index funds to help you choose one that best fits your investment goals.
All index funds will follow different indexes and it is important to understand the index and its representation before choosing a fund. Here are the factors you should consider before choosing an index fund:
– Large-cap Index Funds
These funds follow broader market indices such as Nifty 50 or the Sensex, giving investors exposure to the biggest and the most widely-traded, listed companies on the Indian stock exchanges.
– Mid-cap and Small-cap Index Funds
These funds track indices representing the mid-cap and small-cap companies giving investors exposure to the high-growth potential of mid- to small-cap companies. These funds also pose a higher risk compared to large-cap index funds.
– Sectoral Index Funds
Sectoral funds track a specific sector such as pharma, defense, and banking. These funds pose a greater risk as they are exposed to a single sector, concentrating investments in similar companies and thus reducing the diversification benefits.
– Thematic Index Funds
These funds track indices based on particular themes or investment strategies, such as environmental, social, and governance (ESG) factors, low volatility, or income return.
– Exchange-Traded Funds (ETFs)
ETFs are index funds sold on stock markets, giving buyers real-time price and liquidity. ETFs can track different indices, including broad market, industry, and foreign indices.
Index funds mimic the market
Index funds aim to replicate market returns. The market mimicking feature allows buyers to benefit from market growth while eliminating the research-intensive process of stock selection and portfolio management.
By having a diverse portfolio that matches the index, index funds provide buyers with broad market exposure and the possibility for long-term growth.
How to choose the right index fund to invest
Investors should consider the following factors while selecting the appropriate index mutual fund for investment.
– Investment objective
Determine your investment goals such as wealth creation, retirement planning, regular income generation, and portfolio diversification, and select an index fund that aligns with your goals.
– Risk tolerance
Assess your risk appetite. Choose a fund that matches your risk appetite. For instance, large-cap index funds are considered safer than small- or mid-cap funds.
– Expense ratio
Compare the expense ratios of different index funds, as lower fees can boost long-term profits. ETFs generally have lower costs compared to standard index funds.
– Tracking error
Evaluate the fund’s ability to closely track the performance of the underlying index by studying its tracking error, which measures the departure from the index’s results.
– Fund manager and fund house
Consider the name and track record of the fund manager and the fund house, as well as their financial metrics and management style.
– Taxation
Understand the tax implications of buying in different types of index funds, as the tax treatment can vary based on the fund structure (e.g., mutual fund or ETF).
Conclusion
There are multiple index funds available in the market offered by different fund houses, with each tracking a different index. Choosing the right index fund can prove to be a daunting task. We have listed the top 10 best index mutual funds in India ranked by the size of their assets under management (AUM) to make your index mutual fund selection process easy.
