Best Index Funds in India 2025

It is often recommended that investors diversify their holdings to build a strong portfolio. One method of diversifying their holdings is investing in index funds.

Index funds are instruments that track an underlying index, such as the Nifty 50 or the Nifty Midcap 50. Their primary objective is to replicate the performance of the underlying index. To deliver identical returns, these funds invest in the constituents of the index with the same weightage. In this blog, we will look at the best index funds in India based on 3-year annualised returns.

Best Index Mutual Funds in India 2025

Given below are the best index funds in India based on 3-year annualised returns.

Note: The above returns are as of January 10, 2025

Overview of Best Index Funds in India 2025

Motilal Oswal Nifty Midcap 150 Index Fund Direct-Growth

• The fund was launched on September 6, 2019
• The minimum SIP amount is Rs 500
• 3Y annualised returns of 21.24%
• Carries very high risk
• Assets under management (AUM) of Rs 1,949.15 crore
• 99.9% of the funds allocated to equity while 0.1% held in debt
• Expense ratio of 0.30%

Aditya Birla Sun Life Nifty Midcap 150 Index Fund Direct-Growth

• The fund was launched on April 1, 2021
• The minimum SIP amount is Rs 100
• 3Y annualised returns of 21.22%
• Carries very high risk
• AUM of Rs 293.07 crore
• 99.8% of the funds allocated to equity while 0.2% is held as cash
• Expense ratio of 0.44%

Nippon India Nifty Midcap 150 Index Fund Direct-Growth

• The fund was launched on February 19, 2021
• The minimum SIP amount is Rs 100
• 3Y annualised returns of 20.96%
• Carries very high risk
• AUM of Rs 1,638 crore
• 99.8% of the funds allocated to equity while 0.2% is held as cash
• Expense ratio of 0.30%

Motilal Oswal Nifty Smallcap 250 Index Fund Direct-Growth

• The fund was launched on September 6, 2019.
• The minimum SIP amount is Rs 500
• 3Y annualised returns of 19.74%
• Carries moderately high risk
• AUM of Rs 828.81 crore
• 100% of the funds allocated to equity
• Expense ratio of 0.36%

ICICI Prudential Nifty Smallcap 250 Index Fund Direct – Growth

• The fund was launched on November 2, 2021
• The minimum SIP amount is Rs 100
• 3Y annualised returns of 19.67%
• Carries very high risk
• AUM of Rs.427.51 crore
• 99.8% of the funds allocated to equity while 0.2% held as cash
• Expense ratio of 0.33%

Nippon India Nifty Smallcap 250 Index Fund Direct – Growth

• The fund was launched on October 16, 2020
• The minimum SIP amount is Rs 100
• 3Y annualised returns of 19.56%
• Carries very high risk
• AUM of Rs 1,873.67 crore
• 100% of the funds allocated to equity
• Expense ratio of 0.35%

Aditya Birla Sun Life Nifty Smallcap 50 Index Fund Direct-Growth

• The fund was launched on April 1, 2021
• The minimum SIP amount is Rs 100
• 3Y annualised returns of 16.68%
• Carries very high risk
• AUM of Rs 267.96 crore
• 99.9% of the funds allocated to equity while 0.1% held as cash
• Expense ratio of 0.46%

Kotak Nifty Next 50 Index Fund Direct-Growth

• The fund was launched on March 3, 2021
• The minimum SIP amount is Rs 100
• 3Y annualised returns of 15.95%
• Carries very high risk
• AUM of Rs.359.94 crore
• 99.8% of the funds allocated to equity while 0.1% held as cash
• Expense ratio of 0.11%

Nippon India Nifty Next 50 Junior BeES FoF Direct – Growth

• The fund was launched on March 8, 2019
• The minimum SIP amount is Rs 100
• 3Y annualised returns of 15.76%
• Carries moderately high risk
• AUM of Rs.524.54 crore
• 99.8% of the funds allocated to equity while 0.2% held as cash
• Expense ratio of 0.13%

DSP Nifty Next 50 Index Fund Direct-Growth

• The fund was launched on February 21, 2019
• The minimum SIP amount is Rs 100
• 3Y annualised returns of 15.72%
• Carries moderately high risk
• AUM of Rs.844.26 crore
• 99.9% of the funds allocated to equity while 0.1% held as cash
• Expense ratio of 0.26%

Factors to Consider While Picking Index Funds

Investment Objective

The primary factor to consider while making any investment decision is the objective of the investment. Investors should pick investments that align with their investment goals, time horizon and financial capability. Index funds are suitable for investors who seek returns identical to those of the underlying asset and want to stay invested for the long term.

Risk

Index funds are a great investment option for risk-averse investors. These funds track an underlying index which reduces the intervention required by fund managers. Further, the best index funds in India are also a valuable addition to one’s portfolio as they help in diversification and mitigating the overall risk.

Fund Performance

To be able to choose an index fund with confidence, it is important to know its past and present performance. Investors should select several index funds and compare their performance before choosing one or more for investment.

Tracking Error

The tracking error is another key factor that investors should consider. Index funds aim to replicate the returns of a particular index. However, due to several factors, the fund may not be able to accurately track the underlying index. The lower the tracking error, the more similar the fund’s returns will be to the underlying asset.

Expense Ratio

The expense ratio is a key part of the costs associated with all funds, including index funds. It constitutes the money spent on the management of the fund and the operational costs of the fund. Although index funds have a lower expense ratio compared to other mutual funds, the expense ratio may vary from one index fund to another.

Advantages of Index Funds

Investing in index funds offers several benefits to investors. These include:

• Index funds give investors broad market exposure and aid in diversification.
• Expense ratio and associated costs are relatively lesser in index funds compared to actively managed funds making them a cost-effective option.
• Since index funds try to replicate the performance of an underlying index, they can deliver consistent returns in the long term.
• By investing in an index fund, an investor can avoid over-concentration in a single stock or sector.

Limitations of Index Funds

Although index funds have several advantages, they also have certain limitations.

• Index funds typically have little to no allocation to debt which increases the downside risks.
• Fund managers have little control over the funds’ performance as index funds mimic the underlying index.
• Since index funds replicate the performance of a particular index, there is no scope to generate higher returns, or alpha, than the underlying index.

Conclusion

Investors looking to build sound portfolios should diversify by including index funds. Index funds are a viable option for investors looking for a low-risk instrument that has the potential to generate consistent returns. Comparing index funds based on their 3-year annualised returns can help one pick the best index funds to invest in 2025.