10 Best Index Funds to Invest in India 2023

Index funds offer a more diversified and low-cost investment option that can provide stable returns over time.

They track the performance of an entire market index, such as the Nifty 50 or the BSE Sensex, which is in sharp contrast to the actively managed mutual funds that rely on a fund manager’s experience & ability to beat the market returns.

10 Best Index Funds to Invest in India – 2023

Best Index Funds	5-year Returns	Last 1-Year Return	Expense Ratio	Min SIP
Tata Nifty 50 Index Fund -Direct Plan	12.23%	-0.681%	0.16%	Rs. 1000
UTI Nifty 50 Index Fund – Growth Option- Direc	12.22%	-0.812%	0.20%	Rs. 500
Nippon India Index Fund – Nifty 50 Plan – Direct Plan Growth Plan – Growth Option	12.13%	-0.816%	0.20%	Rs. 100
ICICI Prudential Nifty 50 Index Fund – Direct Plan Cumulative Option	12.13%	-0.819%	0.16%	Rs. 500
BANDHAN Nifty 50 Index Fund – Regular Plan-Growth	12.05%	-1.066	0.10%	Rs. 100
SBI NIFTY INDEX FUND – DIRECT PLAN-GROWTH	12.02%	-0.827%	0.18%	Rs. 500
IDBI NIFTY 50 Index Fund Growth	12.01%	-0.919%	0.32%	Rs. 500
Taurus Nifty 50 Index Fund – Direct Plan – Growth	11.98%	-0.405%	0.44%	Rs. 1000
LIC MF Nifty 50 Index Fund-Direct Plan-Growth	11.93%	-0.702%	0.20%	Rs. 1000
HDFC Index Fund-NIFTY 50 Plan – Growth Plan	11.92%	-1.037%	0.20%	Rs. 100

Disclaimer – it is essential to remember that past performance is not a guarantee of future results. 

You should consider your investment goals, risk tolerance, and investment horizon before choosing a fund. 

Or rather consult your financial advisor before investing in an index fund.

Why Invest in Index Funds

Reasons you should consider while investing in index funds are –

#1. Diversification

Index funds provide exposure to a broad range of stocks, providing investors with diversification benefits. 

Diversification is essential because it reduces the overall risk of the portfolio. Go through our comparison of the stock market vs mutual funds to know how both investing segments work.

#2. Low-Cost

Index funds are low-cost, as they do not require active management. This can help investors save on fees and improve overall returns.

The expense ratio range from 0.10% to 0.50% max.

#3. Consistency

Index funds aim to replicate the performance of the underlying index, which can lead to consistent returns over the long term.

You are assured of returns similar to the index that the fund tracks.

For example, if Nifty 50 gave 15% returns in a particular year. Then Nifty 50 index fund will target to replicate give 15% returns. You can go through our article how to invest in Nifty 50 through Index funds.

Differences in returns if any can be due to tracking error* or fund expenses.

*Tracking error – is the deviation in weights of index funds via a-vis benchmark index. This will result in deviation in the returns of the index fund and its target index.

3 factors that lead to tracking errors in index funds are – 

• Expense ratio 
• Cash holdings 
• Buying/selling underlying index stocks

#4. Transparency

Since index funds track a specific index, their holdings, and performance are transparent and easy to understand.

You can always cross-check the stock weights with the underlying index.

#5. Accessibility

Index funds are widely available and can be easily purchased through a broker or an online investment platform. You can go through our comparison of the Upstox vs Groww to know the brokerage charges of both stock brokers.

How to Choose an Index Fund

Factors to consider when choosing an index fund to invest in are –

#1. Expense Ratio

Look for funds with low expense ratios, as this can help you save on fees and improve overall returns.

#2. Tracking Error

Check the fund’s tracking error, which measures how closely the fund tracks the underlying index. A lower tracking error is generally better.

#3. Fund Size

Invest in funds with sufficient assets under management (AUM), as this can indicate that the fund is well-established and has adequate resources to manage its investments effectively.

#4. Fund House

Consider the reputation and track record of the fund house offering the fund, as this can provide insights into the fund’s management style and approach.

Reputed mutual fund houses in India are –

• LIC mutual fund
• ICICI Prudential mutual fund
• SBI mutual fund
• HDFC mutual fund
• UTI mutual fund

How to Invest in the Best Index Funds

Step 1 – Log in to Your Mutual Fund Investment Platform

I am using Zerodha Coin as I have an existing account with them. You can check out other best brokers for mutual funds as well.

You can use other platforms like –

• Groww
• Scripbox
• Kuvera

Step 2 – Select the Best Index Fund 

Like Nifty 50 index fund, you can also choose the Sensex index funds to invest in Sensex index funds like HDFC Index S&P BSE sensex index fund, thattrack the performance of an underlying BSE Sensex index.

Step 3 – Choose Between Starting a SIP or One-time Lumpsum

SIP is preferred for salaried persons. You can start a SIP with a lower amount of Rs. 100 or Rs. 500 depending on the index fund that you are investing in.

SIP helps you save & invest a fixed amount monthly. 

You have the flexibility to change the fixed SIP amount and the investment frequency.

Lumpsum investment is better for a business person who expects a huge chunk of money inflow.

If you are expecting money from the inheritance or profit from the sale of the property then you can use the lumpsum investment route.

Step 4 – Complete the Payment Process

You can read how to invest in mutual funds in the Zerodha guide to understand the detailed step-by-step process of investing in mutual funds.

Final Thoughts

Index funds are a simple and low-cost way to invest in the market and can provide investors with diversified exposure to the market.

Before that, you need to consider your investment goals, risk tolerance, and investment horizon before choosing a fund. 

Investing in index funds is a smart and simple way to grow your wealth over the long term. 

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