Passive fund management has earned great name for itself in 2016 – 2017 in developed markets like US, Europe etc. Actively managed mutual funds have struggled to beat passively managed funds during the year. It is the time for Indian mutual fund investors to take a close look at passively managed index funds available in the market.

For index funds, the whole index of a stock market is used as an instrument of investment. Index funds buy all the stocks in a particular index in the same proportion as its respective index, thereby performing in coherence with the index.

Three options are available in India for investing in index fund :

  • The Sensex having 30 companies
  • The Nifty having 50 companies
  • An index plus fund- mixer of investing in index and partially in actively managed assets

Read More : What are Index Funds?

Index funds are popular in developed countries like US and are yet to make foothold in developing countries like India, as there are a number of companies that are growing more than index. Let’s look into the best index funds available in India for 2018.

The Best Index Funds of 2018 – At a glance

ICICI Prudential Nifty Next 50 Index Fund
Fund Name 1Y 3Y 5Y Category Risk
ICICI Prudential Nifty Next 50 Index Fund - Direct - Growth -7.05% 13.39% 18.02% Others
(Index)
Moderately High
UTI Nifty Index Fund
Fund Name 1Y 3Y 5Y Category Risk
UTI Nifty Index Fund - Direct - Growth 5.72% 12.25% 12.63% Others
(Index)
Moderately High
HDFC Index Fund - Nifty 50 Plan
Fund Name 1Y 3Y 5Y Category Risk
HDFC Index Fund - NIFTY 50 Plan - Direct - Growth 5.87% 12.23% 12.75% Others
(Index)
Moderately High
HDFC Index Fund - Sensex Plus Plan
Fund Name 1Y 3Y 5Y Category Risk
HDFC Index Fund - SENSEX Plan - Direct - Growth 15.99% 8.92% 13.41% Others
(Index)
Moderately High

The Best Index Funds of 2018 – Details

Index funds, as the name suggests, invest in an index. These funds purchase all the stocks in the same proportion as in a particular index. The scheme will perform in tandem with the index it is tracking, save for a small difference known as tracking error.

Why Should You Invest in Index Funds?

Unlike actively managed mutual funds, index funds passively track the performance of a particular index. These funds are not meant to outperform the market, but mimic the performance of the index. Here’s the best index fund available in :

1.ICICI Prudential Nifty Next 50 Index Fund 

This is a Index Mutual Fund launched in June 25, 2010. It is a fund with high risk and have given a return of 12.65 % since its launch.

Returns per annum over the years from this fund are:

Duration Returns
1 year  17.64 %
3 years  12.87 %
5 years  19.41 %

Invest in ICICI Prudential Nifty Next 50 Index Fund now :

  • This fund has been rated as a 5 star fund by Groww.
  • AUM of close to ₹ 157 Cr.
  • Age is nearly 7 years. So its performance can be easily judged.
  • Has consistently outperformed its benchmark Nifty Next 50 TRI since its launch.
  • The top portfolio holdings of the fund include Titan Company Ltd., JSW Steel Ltd., Bajaj Finserv Ltd., Motherson Sumi Systems Ltd., Britannia Industries Ltd., Godrej Consumer Products Ltd., CBLO (CCIL) etc.
  • The holdings are balanced across various sectors with maximum weightage given to Consumer Goods ( 27.5 % ) followed by Financial Services ( 17.9 % ).

  • Minimum SIP = ₹ 1000
  • Equity share = 97.9 % , Debt share = 0 % and Cash = 2.1%.

  • Large Cap share = 89.3 % , Mid Cap share = 10.7 % and Small Cap share = 0 %

The objective of the fund is to invest in companies whose securities are included in Nifty Junior Index and to endeavor to achieve the returns of the above index as closely as possible, though subject to tracking error.

The fund intends to track only 90-95 % of the Index i.e. it will always keep cash balance between 5-10 % of the Net Assets to meet the redemptions and other liquidity requirements.

However, as and when the liquidity in the Index improves the fund intends to track up to 100 % of the Index.

2.UTI Nifty Index Fund

This is a Index Mutual Fund launched in February 14, 2000. It is a fund with moderately high risk and have given a return of 10.98 % since its launch.

Returns per annum over the years from this fund are:

Duration Returns
1 year  14.59 %
3 years  5.64 %
5 years  12.35 %

Invest in UTI Nifty Fund now

  • This fund has been rated as a 5 star fund by Groww.
  • AUM of close to ₹ 716 Cr.
  • Age is nearly 17 years. So its performance can be easily judged.
  • Has consistently outperformed its benchmark Nifty 50 Total Return since its launch.
  • The top portfolio holdings of the fund include Reliance Industries Ltd., HDFC, Tata Consultancy Services Ltd., ITC Ltd., ICICI, Infosys, Kotak Mahindra Bank Ltd., Maruti Suzuki India Ltd., Larsen & Toubro Ltd.etc.
  • The holdings are balanced across various sectors with maximum weightage given to Financial Services ( 36.5 % ) followed by Energy ( 14.7 % )

  • Minimum SIP = ₹ 500
  • Equity share = 99.3 % , Debt share = 0 % and Cash = 0.7 %.

  • Large Cap share = 100 % , Mid Cap share = 0 % and Small Cap share = 0 %

UTI NIF is an open-ended passive fund with the objective to invest in securities of companies comprising of the Nifty 50 in the same weight age as they have in Nifty 50. The fund strives to minimize performance difference with Nifty 50 by keeping the tracking error to the minimum.

3.HDFC Index Fund – Nifty 50 Plan

This is a Index Mutual Fund launched in July 17, 2002. It is a fund with moderately high risk and have given a return of 18.17 % since its launch.

Returns per annum over the years from this fund are:

Duration Returns
1 year  14.37 %
3 years  5.58 %
5 years  12.48 %

Invest in HDFC Index Fund – Nifty 50 Plan now

  • This fund has been rated as a 4 star fund by Groww.
  • AUM of close to ₹ 312 Cr.
  • Age is nearly 15 years. So its performance can be easily judged.
  • Has consistently outperformed its benchmark Nifty 50 since its launch.
  • The top portfolio holdings of the fund include Reliance Industries Ltd., HDFC, Tata Consultancy Services Ltd., ITC Ltd., ICICI, Infosys, Kotak Mahindra Bank Ltd., Maruti Suzuki India Ltd., Larsen & Toubro Ltd.etc.
  • The holdings are balanced across various sectors with maximum weightage given to Financial Services ( 36.4 % ) followed by Energy ( 14.7 % )

  • Minimum SIP = ₹ 500
  • Equity share = 85.9 % , Debt share = 0 % and Cash = 14.1%.

  • Large Cap share = 100 % , Mid Cap share = 0 % and Small Cap share = 0 %

The objective of this Plan is to generate returns that are commensurate with the performance of the NIFTY, subject to tracking errors.

4.HDFC Index Fund – Sensex Plus Plan

This is a Index Mutual Fund launched in April 03, 2008. It is a fund with moderately high risk and have given a return of 16.60 % since its launch.

Returns per annum over the years from this fund are:

Duration Returns
1 year  44.19 %
3 years  21.21 %
5 years  25.14 %

Invest in HDFC Index Fund – Sensex Plus Plan now 

  • This fund has been rated as a 4 star fund by Groww.
  • AUM of close to ₹ 117 Cr.
  • Age is nearly 10 years. So its performance can be easily judged.
  • Has consistently outperformed its benchmark S&P BSE Sensex since its launch.
  • The top portfolio holdings of the fund include Reliance Industries Ltd., HDFC, Tata Consultancy Services Ltd., ITC Ltd., ICICI, Infosys, Kotak Mahindra Bank Ltd., Maruti Suzuki India Ltd., Larsen & Toubro Ltd.etc.
  • The holdings are balanced across various sectors with maximum weightage given to Financial Services ( 34.1 % ) followed by Energy ( 14.2 % )

  • Minimum SIP = ₹ 500
  • Equity share = 100 % , Debt share = 0 % and Cash = 0 %.

  • Large Cap share = 90.1 % , Mid Cap share = 9 % and Small Cap share = 0.9 %

The scheme aims to invest 80 to 90% of its assets in the companies that form the Sensex and between 10 and 20% of the assets in the companies which are not included in the Sensex.

How Index Funds are different from Mutual Funds?

Index funds are different from mutual fund mainly in three ways :

1.Mutual fund portfolios do active stock picking to park money, whereas index funds passively follow the performance of a particular index.

2.Index funds are meant to mimic the performance of the index. But mutual funds are meant to outperform the index.

3.As index funds are passively managed, it helps to keep cost low as compared to other actively managed mutual funds.

Should you invest in index funds?

Index funds are passively managed funds whereas mutual funds are actively managed. Index funds can play an important role if you are looking for long-term investments with very low costs.

Index funds offer very good diversification benefits as these funds have stocks from all the sectors and therefore represent entire economy of a country. These funds have very low expense ratios because of the low churn rate of the portfolio.

The risk involved in these funds is between moderate and high depending on the index. Investors who are more interested in the more modest objective of having an equity growth component in their portfolio, rather than the more aggressive objective of beating the equity market benchmark, would be better off investing in an index fund.

What is an index? Why is it important to a MF investor?

This again does not mean that the NAV of an index fund will not decline in value. If the benchmark index goes down, then the NAV of the index fund too will go down. If the investor has a long enough horizon, then his investment will do well, in line with the overall market.

Among index schemes, tracking error is a basis to select the better scheme. Lower the tracking error, the better it is.

Index funds may be making waves in the US and other developed markets. However, in emerging markets like India, index funds are yet to make a splash. This is because in a growing market like India there are many companies that would grow at a faster pace and offer index-bearing returns. Many mutual fund managers believe that the trend may continue for at least the next five years. So it is advisable for you to continue to bet on actively managed schemes.

Things to Remember

Don’t just run for returns from investment for investing in mutual funds. There are a lot of factors you should look into before selecting a fund which will match your investment goals.

Following the 3 things you should always remember before investing in Mutual Funds :

  • Higher rates : don’t blindly invest in the fund with the highest returns. Invest based on the duration you want to invest for.
  • Every person’s financial condition is different. Evaluate the funds you invest in yourself – don’t invest in a fund because of its popularity.
  • Review your investment from time to time but not too often. Once a few weeks is good enough.

Read More: 10 Tips on investing in Mutual Funds

To ensure that the fund is in good hands, choose a fund house having fund manager with good amount of experience managing small/mid cap funds and associated with these funds for some good numbers of years.

To look at some of the best performing funds from every category of mutual funds, check out: These Are the Only 5 Best Index Funds in India That You Need to Know About

Happy Investing!

Disclaimer: the views expressed here are of the author and do not reflect those of Groww.