As the name suggests, index funds invest in an index.

This means index funds buy all the stocks in a particular index in the same proportion as its respective index, thereby performing in coherence with the particular index. Index funds are also known as passive funds.

Most of the trading in the Indian stock market takes place on its two stock exchanges: the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).

What are 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.

Index funds are popular in developed countries like the US and are yet to make a foothold in developing countries like India, as there are a number of companies growing more than the index.

Why Should You Invest in Index Funds?

Let’s look at the 3 best index funds available in India in 2018.

Top 3 Index funds-At a Glance
Fund Name1Y3Y5YCategoryRisk
UTI Nifty Index Fund - Direct - Growth8.51%12.91%12.99%Others
(Index)
Moderately High
ICICI Prudential Nifty Next 50 Index Fund - Direct - Growth-5.8%13.26%18.03%Others
(Index)
Moderately High
HDFC Index Fund - NIFTY 50 Plan - Direct - Growth8.66%12.88%13.12%Others
(Index)
Moderately High

Top 3 Index funds – Details

Here are the best 3 mutual fund schemes in the Index fund category:

1. UTI Nifty Fund – Direct

This is an index equity oriented mutual fund launched on January 1, 2013. It is a fund with moderately high risk and has given a return of 12.43% since its launch.

Key information about this fund:

Launch Date01 January 2013
Fund CategoryEquity – Index
Plan TypeDirect
Rating by Groww5 Star
AUM (Fund Size)₹716 Cr
RiskometerModerately High
Minimum SIP₹500
Minimum SWPNot Supported
Performance w.r.t its BenchmarkHas consistently outperformed its benchmark NIFTY 50, total Return since its launch.
Age of the fund5 years
Expense Ratio0.13%
Exit LoadNIL
Type Open-ended

Allocation

This scheme seeks to invest in stocks of companies comprising Nifty 50 Index and endeavors to achieve returns which are equivalent to Nifty 50 Index, by passive investment.

2. ICICI Prudential Nifty Next 50 Index Fund

This is an index equity oriented mutual fund launched on January 1, 2013. It is a fund with high risk and has given a return of 17.79%, since its launch.

Key information about this fund:

Launch Date01 January 2013
Fund CategoryEquity – Index
Plan TypeDirect
Rating by Groww5 Star
AUM (Fund Size)₹157 Cr
RiskometerHigh
Minimum SIP₹1000
Minimum SWP₹500
Performance w.r.t its BenchmarkHas consistently outperformed its benchmark NIFTY Next 50 TRI, since its launch.
Age of the fund5 years old
Expense Ratio0.45%
Exit LoadIf redeemed bet. 0 Days to 7 Days; Exit Load is 0.25%;
Type Open-ended

Allocation

The investment objective of the scheme is to invest in companies whose securities are included in Nifty Junior Index (the Index) and endeavors to achieve returns of the index as closely as possible.

The scheme will not seek to outperform the CNX Nifty Junior. The objective is that the performance of the NAV of this scheme will closely track the performance of the CNX Nifty Junior over the same period will be subject to tracking the error.

3. HDFC Index Fund – Nifty 50 Plan – Direct 

This is an index equity oriented mutual fund launched on December 31, 2012. It is a fund with moderately high risk and has given a return of 15.44% since its launch.

Key information of this fund:

Launch Date01 January 2013
Fund CategoryEquity – Index
Plan TypeDirect
Rating by Groww4 Star
AUM (Fund Size)₹312 Cr
RiskometerModerately High
Minimum SIP₹500
Minimum SWP₹500
Performance w.r.t its BenchmarkHas consistently outperformed its benchmark NIFTY 50 Total Return since its launch.
Age of the fund5 years old
Expense Ratio0.16%
Exit LoadNIL
Type Open-ended

Allocation

This scheme seeks to invest primarily in 50 scrips comprising the S&P CNX NIFTY in the same proportion.

What is an Index?

People often speak about how the market had fallen that day, or that the market jumped on another day. However, if you read the stock table, you will realize that not all stocks rise or fall.

There were some, which moved in the opposite direction. This market means an index.

A stock index or stock market index is a measurement of a section of the stock market. From among the stocks listed on the exchange, some similar stocks are selected and grouped together to form an index.

What are Indexes in the India stock market?

The values of the grouped stocks are used to calculate the value of the index (typically a weighted average). Any change in the price of the stock leads to a change in the index value.

An index is thus indicative of the changes in the market and used by investors and financial managers to describe the market. It also compares the return on specific investments.

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Things to Remember

There are a lot of factors you should look into before selecting a mutual fund scheme which will match your investment goals.

These are the few important things one must always remember before investing in mutual funds :

1.Higher rates: don’t blindly invest in the fund with the highest returns. Invest based on the duration you want to invest for.

2.Every person’s financial condition is different. Evaluate the funds you invest in yourself – don’t invest in a fund because of its popularity.

3.Systematic Investment Plan (SIP) is much better and safer option for investing in equity oriented mutual funds.

4.Direct plan for mutual fund gives you higher returns as compared to a regular plan of mutual fund schemes.

5.STP route is best for all those investors who wish to invest a lump sum in mutual fund schemes because this way, they get the dual benefits of comparative risk investment.

6. Review your investment from time to time but not too often. Once in a few weeks is good enough.

Also, there are many myths and false beliefs about mutual funds which circulates the market. The most successful investors are the ones that ignore the myths and pay attention to only what needs their attention.

10 Secrets Only Successful Mutual Fund Investors Know

To know more about investing in a mutual fund, Read More: 10 Tips on investing in Mutual Funds

To look at some of the best performing funds from every category of mutual fund, check out Best mutual funds to invest in 2019

Happy Investing!

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