Index Fund
Image showing Stock Market Index Written, Index Fund

Index Funds in India |The Best, Low-Risk Investment Strategy

Do you want to invest in the stock market? Afraid of the high risk associated with individual shares of the company.

Go for Investing in Index Fund. An index fund investment is a better way to invest in the stock market with low risk

Image Sowing Index Fund written

What is an index fund?

An index fund is a portfolio of stocks designed to copy the composition and performance of a financial market index.

These products are composed of portfolios of stocks that are managed by Asset Management Company, during which each share represents a small part ownership stake within the whole portfolio.

It is a passive fund that mirrors a particular index such as:

  • Benchmark indices e.g., NSE Nifty and BSE Sensex
  • Broad-based indices e.g., Nifty 50 and BSE 100

For index funds, the goal of the Asset Management company isn’t to outperform the underlying index but simply to match its performance. If, for example, a particular stock makes up 5% of the index, then the firm managing the index fund will seek to match that same composition by making 5% of its portfolio consist of that stock

How does an index fund work?

There are several such Index funds offered by India’s mutual fund AMC. Some very large index funds track the Nifty 100 Index or the BSE’s Sensex.

For Example, an index fund that is tracking the Sensex plan will have 30 stocks in its portfolio as is the case with Sensex. Similarly, a fund with a Nifty100 plan will have 100 underlying stocks.

Further, the weight of each stock will also be the same as it is in the case of Sensex or Nifty which is being tracked by such Index Fund.

Such an allocation of funds in the stocks matching the index makes the fund a passive fund.

Passive Fund means that a fund manager does not have to manage this fund actively or do research on picking, holding, or selling stocks to make up the portfolio. Therefore, such funds are meant to copy indices, not outperform them.

Why is it better to invest in index funds?

Index funds allow investors to invest mainly in diversified large-cap stocks which are established companies and market leaders across the sectors. This gives a relative safety net to investors as such funds are low-risk than an actively managed equity fund. To manage personal finance and build wealth it is necessary to start investing early. If Your risk appetite is low you should invest in low-risk investments such as index funds.

How can you start investing in index funds?

You can invest in Index Fund by purchasing Units of Index Fund just like any other Mutual fund. There is no requirement for DEMAT.

Units of index funds can be purchased by visiting the website of Assets Management Company (AMC) or through mutual fund agents.

Man holding play card on which List of Index Fund Is written

Best Index Funds in India

List of Some Top Index Funds in India

SchemeSub CategoryTypeMin. Invest(Rs.)NAV(Rs.)Exp. Ratio(%)
  HDFC Index Fund-NIFTY 50 Plan(G)Index Funds – NiftyOpen-ended5,000.00149.880.4
  ICICI Pru Nifty Index Fund(G)Index Funds – NiftyOpen-ended1,000.00159.040.4
  UTI Nifty Index Fund-Reg(G)Index Funds – NiftyOpen-ended5,000.00108.200.3
  UTI Nifty Index Fund-Reg(IDCW)Index Funds – NiftyOpen-ended5,000.0054.510.3
  SBI Nifty Index Fund-Reg(IDCW)Index Funds – NiftyOpen-ended5,000.0071.940.49
  SBI Nifty Index Fund-Reg(G)Index Funds – NiftyOpen-ended5,000.00140.220.49
  Aditya Birla SL Index Fund-Reg(G)Index Funds – NiftyOpen-ended1,000.00160.890.59
  Franklin India Index Fund-NSE Nifty(G)Index Funds – NiftyOpen-ended5,000.00128.800.67
  LIC MF Index Fund-Nifty Plan(G)Index Funds – NiftyOpen-ended5,000.0089.671.03
  Tata Index Fund-Nifty Plan(G)Index Funds – NiftyOpen-ended5,000.0098.910.55
  Taurus Nifty Index Fund-Reg(G)Index Funds – NiftyOpen-ended5,000.0031.051.09
  IDFC Nifty Fund-Reg(G)Index Funds – NiftyOpen ended5,000.0034.260.76
  IDBI Nifty Index Fund(G)Index Funds – NiftyOpen-ended5,000.0029.850.89
  Nippon India Index Fund – Nifty Plan(G)Index Funds – NiftyOpen-ended1,000.0027.141.18
  Nippon India Index Fund – Nifty Plan(Q-IDCW)Index Funds – NiftyOpen-ended1,000.0022.351.18
  DSP Equal Nifty 50 Fund-Reg(G)Index Funds – NiftyOpen-ended1,000.0014.400.81
  DSP NIFTY 50 Index Fund-Reg(G)Index Funds – NiftyOpen ended1,000.0015.260.4
  Motilal Oswal Nifty 50 Index Fund-Reg(G)Index Funds – NiftyOpen-ended1,000.0013.430.5
  Aditya Birla SL Nifty Smallcap 50 Index Fund-Reg(G)Index Funds – NiftyOpen-ended1,000.0012.350.0
  L&T Nifty 50 Index Fund-Reg(G)Index Funds – NiftyOpen-ended5,000.0018.280.7
List of Top Rated Index Fund In India

Tax Implication on Index Fund

“The hardest thing in the world to understand is the Income Tax.”

Albert Einstein.

As index funds are a category of equity funds, they’re essentially taxed like all other equity fund plans.
The dividends offered by a mutual fund is added to your overall income and taxed at your tax slab rate.
The rate of taxation of index funds depends on the time period for which you hold units of Index Fund.

 It can be classified as

  • Short-term capital gains (STCG-If Units are redeemed within one Year. Tax rate on STCG is flat 15%
  • Long-term capital gains -If Units are sold after holding more than one year. LTCG up to one lakh are exempted from tax above which it is taxed @10% without any benefit of indexation

Index Funds vs ETFs

There is a basic difference between index funds and ETFs. Many index funds and ETFs both mimic various stock market indices.

The main difference between the two is that ETFs are listed on the stock exchanges and traded daily during market hours.

Index funds work like normal mutual funds where often the day end’s NAV is charged.

For purchasing and selling ETFs you should have a DEMAT account with depositories. There is no need to have a DEMAT account to buy or sell Index Fund units.

Image showing to analyse before investing in Index Fund

Should you invest? Pros & Cons


  • Index funds have lower expenses ratio and cost than actively managed mutual funds.
  • Index funds tend to give good returns when there is a bull run in market
  • Risk associated in Index Fund are less as they invest only in Large-Cap blue chip companies.
  • Can be easily bought and sold without requirement of DEMAT.


  • A big disadvantage of the passive manged index fund is that you simply won’t get above-market returns

Historic Returns – index funds | Mutual funds with highest returns

Scheme Name  CRISIL Rank  AUM (Cr)  Return: YTDReturn: 2YearsReturn: 5 Years
UTI Nifty Index Fund – Direct Plan-Growth44,353.1217%14%15%
HDFC Index Fund – Direct Plan – Sensex Plan32,323.9315%14%15%
LIC MF Index Fund – Nifty Plan – Direct Plan – G347.4817%13%14%
IDBI Nifty Index Fund – Direct Plan – G3195.9216%13%14%
SBI Nifty Index Fund – Direct Plan – G31,278.8317%13%14%
HDFC Index Fund – Direct Plan – Nifty 50 Plan33,415.3217%13%15%
ICICI Prudential Nifty Index Fund – Direct Plan – G31,870.0417%13%14%
ICICI Prudential Sensex Index Fund – Direct Plan – G2296.8815%14%
UTI Nifty Index Fund – Direct Plan – G44,353.1217%14%15%
HDFC Index Fund – Direct Plan – Sensex Plan32,323.9315%14%15%
LIC MF Index Fund – Nifty Plan – Direct Plan – G347.4817%13%14%
IDBI Nifty Index Fund – Direct Plan – G3195.9216%13%14%
SBI Nifty Index Fund – Direct Plan – G31,278.8317%13%14%
HDFC Index Fund – Direct Plan – Nifty 50 Plan33,415.3217%13%15%
ICICI Prudential Nifty Index Fund – Direct Plan – G31,870.0417%13%14%
Index Fund Historic Return Profile


Stocks, bonds, property, gold, and a host of other assets are all undervalued today. Investors should expect global wealth to grow by 20% a year through 2023, especially in Asia.

Before Investing in Index Fund, you should:

  • Check the market index followed by Index Fund and associated Risk
  • Check Expense Ratio & Cost imposed on the fund by AMC
  • Check Historic Returns Generated by such Funds

Global economic growth is poised to continue through the next decade, but the benefits will accrue to those who are smart about investment.

Unless you know more about how to find the best stocks and invest in stocks, I recommend an index fund.

Disclosure:  I/we haven’t any positions in any stocks mentioned, and no plans to initiate any positions within the subsequent 72 hours. I wrote this text myself, and it expresses my very own opinions. I am not receiving compensation for recommending Index Fund


Anish is post graduate in commerce & management. He is a qualified Chartered Accountant & Information System Auditor with experience of more than 20 years in the field of management, accounting & taxation. He is visiting the faculty of various universities and providing career advice to aspirants Anish Agrawal has authored many books on Accountancy & Taxation.

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