Investing in index funds has become a popular strategy for investors looking to achieve steady returns with minimal risk. Focusing on replicating the performance of a specific index, these funds offer diversification and lower expense ratios. In this guide, we will explore the best index funds in India for 2024 and provide insights into choosing the right ones for your portfolio.
- What are Index Funds?
- Best Examples of Index Funds in India for 2024
- ICICI Prudential Nifty 50 Index Direct Plan-Growth
- Motilal Oswal Nifty Small Cap 250 Index Fund Direct-Growth
- DSP Nifty 50 Equal Weight Index Fund Direct-Growth
- Canara Robeco Small Cap Fund Direct-Growth
- How do I Choose the Best Indian Index Fund to Invest in?
- Expense Ratio
- Past Performance
- Minimum Investment
- Index Tracked
- Who Should Invest in Index Funds?
- Factors to Consider When Investing in Index Funds
- Benefits of Investing in the Best Indian Index Funds
- Investing in the best index funds in India offers several benefits:
- Conclusion
Topics Covered :
What are Index Funds?
Index funds are mutual funds designed to replicate the performance of a specific index, such as the Nifty 50 or Sensex. By investing in the same securities that constitute the index, these funds aim to provide similar returns.
They are passively managed, meaning fund managers do not actively make decisions about buying or selling securities. This passive management results in lower fees compared to actively managed funds.
Index funds are ideal for investors looking for a simple, low-cost way to invest in the stock market. They offer broad market exposure, and because they mirror the performance of an index, they tend to be less volatile than individual stocks.
Additionally, index funds are transparent, making it easy for investors to understand where their money is invested.
Best Examples of Index Funds in India for 2024
| Index Fund | Minimum SIP Investment | 3-Year Return | Expense Ratio |
| ICICI Prudential Nifty 50 Index Direct Plan-Growth | Rs 100 | 16.34% | 0.17% |
| Motilal Oswal Nifty Small Cap 250 Index Fund | Rs 500 | 33.64% | 0.36% |
| Nippon India Nifty Small Cap 250 Index Fund | Rs 1,000 | 33.50% | 0.32% |
| DSP Nifty 50 Equal Weight Index Fund | Rs 100 | 22.94% | 0.40% |
| Canara Robeco Small Cap Fund | Rs 1,000 | 37.33% | 0.44% |
ICICI Prudential Nifty 50 Index Direct Plan-Growth
The ICICI Prudential Nifty 50 Index Direct Plan-Growth is designed to mirror the performance of the Nifty 50 index, making it a low-cost investment option for those looking to diversify their portfolio with blue-chip stocks. This fund boasts a minimal expense ratio of 0.17%, one of the industry’s lowest.
Over the past three years, it has delivered a return of 16.34%, reflecting the overall growth of the Nifty 50 index. Investors can start a Systematic Investment Plan (SIP) with a minimum amount of Rs. 100, making it accessible to many investors.
Motilal Oswal Nifty Small Cap 250 Index Fund Direct-Growth
The Motilal Oswal Nifty Small Cap 250 Index Fund Direct-Growth is an excellent choice for those investing in smaller companies. This fund tracks the Nifty Small Cap 250 index, which includes 250 of the smallest companies by market capitalisation within the Nifty 500.
This fund has shown substantial growth potential with a 3-year return of 33.64%. The minimum SIP investment required is Rs. 500, and the expense ratio is 0.36%, which is reasonable given the high returns.
Nippon India Nifty Small Cap 250 Index Fund Direct-Growth
Similar to the Motilal Oswal fund, the Nippon India Nifty Small Cap 250 Index Fund Direct-Growth also targets the Nifty Small Cap 250 index. This fund requires a higher minimum SIP investment of Rs. 1,000 but offers a competitive 3-year return of 33.50%.
The expense ratio for this fund is 0.32%, slightly lower than that of the Motilal Oswal counterpart, making it an attractive option for investors looking for high returns with relatively low costs.
DSP Nifty 50 Equal Weight Index Fund Direct-Growth
The DSP Nifty 50 Equal Weight Index Fund Direct-Growth aims to provide balanced exposure by giving equal weightage to all companies within the Nifty 50 index. This strategy can help mitigate risks associated with over-concentration in any single stock.
The fund requires a minimal SIP investment of Rs. 100 and has yielded a 3-year return of 22.94%. An expense ratio of 0.40% offers a balanced approach for investors seeking stability and growth in the best index funds to invest in India.
Canara Robeco Small Cap Fund Direct-Growth
For those focused on high-growth small-cap companies, the Canara Robeco small-cap stocks Direct-Growth stands out with the highest 3-year return of 37.33% among the listed funds.
It requires a minimum SIP investment of Rs. 1,000 and has an expense ratio of 0.44%. This fund is ideal for investors with a higher risk appetite who want to capitalise on the potential growth of small-cap stocks in India.
How do I Choose the Best Indian Index Fund to Invest in?
When selecting the best index funds in India, consider several critical factors to ensure that your investment aligns with your financial goals and risk tolerance. The top index funds India offers can vary significantly in terms of expense ratios, past performance, minimum investment requirements, and the specific indices they track.
Here’s a detailed look at the key aspects to help you choose the best index funds to invest in India.
Expense Ratio
The expense ratio is a crucial factor when choosing an index fund. This ratio represents the annual fee that the mutual fund charges its investors. A lower expense ratio means more of your money is being put to work in the market rather than going towards fees.
For example, funds like the ICICI Prudential Nifty 50 Index Direct Plan-Growth have a low expense ratio of 0.17%, making them a cost-effective option for investors. Always compare the expense ratios of different funds to find the most economical option.
Past Performance
While past performance does not indicate future results, it provides insight into the fund’s stability and management quality. Consistent past performance suggests that the fund has effectively managed market ups and downs.
For instance, the Canara Robeco Small Cap Fund Direct-Growth boasts a 3-year return of 37.33%, indicating its potential for high returns. Reviewing the fund’s historical performance can help you gauge its reliability.
Minimum Investment
Different funds have varying minimum investment requirements, which can influence your choice depending on your budget. For beginners or those with limited capital, funds with lower minimum SIP investments, such as the DSP Nifty 50 Equal Weight Index Fund Direct-Growth, which requires just Rs. 100, are more accessible.
Conversely, funds like the Nippon India Nifty Small Cap 250 Index Fund Direct-Growth, with a minimum SIP investment of Rs. 1,000, might suit investors willing to commit more substantial amounts.
Index Tracked
Ensure the index aligns with your investment objectives and risk tolerance. For example, the Motilal Oswal Nifty Small Cap 250 Index Fund Direct-Growth focuses on small-cap stocks, which can offer higher returns but come with increased volatility.
On the other hand, the ICICI Prudential Nifty 50 Index Direct Plan-Growth tracks the Nifty 50, providing exposure to large-cap companies, which are generally more stable.
Additionally Read: Demat Account Definition
Who Should Invest in Index Funds?
Index funds are suitable for various types of investors due to their inherent characteristics:
● Long-term Investors: These funds are ideal for investors with a long-term horizon, as they are designed to grow steadily over time by mimicking the performance of market indices.
● First-time Investors: Due to their simplicity, low cost, and diversification benefits, index funds are excellent for beginners just starting their investment journey.
● Risk-averse Investors: Investors looking to minimise risk will find index funds appealing because they spread investments across a wide array of securities, reducing the impact of individual stock volatility.
Factors to Consider When Investing in Index Funds
Investing in index funds requires careful consideration of several factors:
● Expense Ratio: Look for funds with lower expense ratios to maximise returns.
● Tracking Error: Lower tracking errors indicate better fund management.
● Investment Horizon: Match the fund’s strategy with your investment horizon.
● Market Conditions: Assess current market conditions and future outlooks.
● Fund Size: Larger funds tend to be more stable.
Benefits of Investing in the Best Indian Index Funds
Investing in the best index funds in India offers several benefits:
● Diversification: Spreads risk across a wide range of securities.
● Lower Costs: Passive management results in lower fees.
● Consistent Returns: Mirrors the performance of an index, providing stable returns.
● Simplicity: Easy to understand and manage, making them suitable for all types of investors.
Investing in the best index funds in India offers several benefits:
● Diversification: Spreads risk across a wide range of securities.
● Lower Costs: Passive management results in lower fees.
● Consistent Returns: Mirrors the performance of an index, providing stable returns.
● Simplicity: Easy to understand and manage, making them suitable for all types of investors.
Conclusion
By considering factors like expense ratios, past performance, and investment goals, you can make informed decisions that align with your financial objectives. Remember to review your portfolio regularly and make adjustments as needed to stay on track.
Learn More About Stock Market