15 Best Index Funds In India (2022): Benefits, Taxation & Who Can Invest
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10 May 2022Index funds replicate the performance of a stock market index, such as the Sensex or Nifty 50 to generate maximum returns. Index funds are one of the most sought-after passive investments. Their broad market exposure, low operating expenses and returns make them ideal for investors with a medium-risk appetite.
If you are considering investing in index mutual funds, here’s a complete list of the 15 best index funds you can invest in this year. Take a look!
Table of contents
15 Best Index Funds in 2022
| Top Index Funds | Features | 3-Year returns | 5-Year returns | |
| 1. | Navi Nifty 50 Index Fund | NAV: Rs. 10.3335 as of May 2022. Expense Ratio: 0.26 AUM: 276.578 cr | NA | NA |
| 2. | Navi Nifty Next 50 Index Fund | NAV: 9.4319 as of May 2022. Expense Ratio: 0.58 AUM: 40.161 cr | NA | NA |
| 3. | IDFC Nifty Direct Plan-Growth | NAV: 35.08 as of May 2022. Expense Ratio: 0.08 AUM: 402 cr | 13.45% | 13.24% |
| 4. | HDFC Index Sensex Direct Plan-Growth | NAV: 501.55 as of May 2022. Expense Ratio: 0.20 AUM: 3,312 cr | 13.25% | 13.83% |
| 5. | Aditya Birla Sun Life Nifty Next 50 | NAV: 9.9019 Expense Ratio: 1.03 AUM: 27.363 cr | NA | NA |
| 6. | UTI Nifty Index Fund Direct-Growth | NAV: 110.50 Expense Ratio: 0.21 AUM: 6,882 Cr | 13.24% | 13.14% |
| 7. | Nippon India Sensex Plan Direct-Growth | NAV: 28.49 Expense Ratio: 0.25 AUM: 269 Cr | 13.37% | 13.90% |
| 8. | Tata Index Nifty Direct | NAV: 107.12 Expense Ratio: 0.16 AUM: 256 Cr | 13.19% | 13.03% |
| 9. | ICICI Prudential Nifty Direct Plan-Growth | NAV: 166.37 Expense Ratio: 0.18 AUM: 2,915 Cr | 13.25% | 12.92% |
| 10. | HDFC Nifty 50 Plan Direct-Growth | NAV: 153.87 Expense Ratio: 0.2 AUM: 5,660 Cr | 13.10% | 13.06% |
| 11. | SBI Nifty Index Direct Plan-Growth | NAV: 147.02 Expense Ratio: 0.18 AUM: 2,251 Cr | 12.95% | 12.87% |
| 12. | Aditya Birla Sun Life Nifty 50 Direct-Growth | NAV: 164.33 Expense Ratio: 0.33 AUM: 355 Cr | 12.96% | 12.55% |
| 13. | Axis Nifty 100 Index Fund Direct-Growth | NAV: 14.41 Expense Ratio: 0.15 AUM: 768 Cr | 57.93% | NA |
| 14. | Mirae Asset Equity Allocator FoF Direct-Growth | NAV: 14.98 Expense Ratio: 0.18 AUM: 260 cr | NA | NA |
| 15. | DSP Nifty 50 Index Fund Direct-Growth | NAV: 15.5 Expense Ratio: 0.22 AUM: 181 cr | 12.99% | NA |
*Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
Compare and streamline your options and choose the best investment plan for yourself.
How does an Index Fund Work?
An index fund tracks a market index and replicates the performance of the underlying index. Unlike actively managed funds, for index mutual funds, fund managers have little or no role to play in buying and selling of stocks.
As fund managers do not actively take all buying and selling decisions, they are comparatively cheaper than other mutual funds. However, the fund manager decides which stocks have to be bought and sold according to the composition of the underlying benchmark.
Therefore, investing in index funds is convenient for individuals seeking low-cost investment options.
Also Read: Active Mutual Fund vs Index Mutual Fund
Who should Invest in Index Funds?
It’s advised to invest in funds as a part of your asset allocation. First-time investors can also opt for such funds as a stepping stone to their investment journey.
1. Investors Who Do Not Wish to Track Fund’s Performances Frequently
The major difference between actively and passively managed funds is that the former requires constant monitoring of the fund’s performance. However, since index mutual funds are passively managed funds, their portfolio constituents and performance depend on the specific index.
2. Investors with a Low-risk Appetite
If you are a risk-averse investor, index funds can be a safer option than actively managed funds. For instance, if you want to invest in equities but are wary of the risks associated with actively managed equities, you can choose the Nifty Index fund. Such funds will track the market index and generate returns accordingly.
3. Investors Looking for Low-cost Funds
Since active funds require human intervention in the form of fund managers, a certain amount of your investment goes toward the fund manager’s fee. This makes an actively managed fund a bit costlier. However, for index mutual funds, the expense ratio is much lower as such funds simply replicate the index and don’t require any manual intervention when it comes to the selection of stocks.
Also Read: How To Invest In Mutual Funds
Benefits of Investing in Index Funds
1. Low Cost
Index funds have a low expense ratio compared to other mutual funds owing to the passive investing strategy. Thus, if you’re seeking low-cost investment options, index mutual funds can be an option worth considering.
2. Transparency
Unlike active mutual funds vehicles, knowing the portfolio of an index fund is easy and simple. All you need to do is know the fund’s benchmark index, and you can determine the securities it holds.
3. Exposure to a Broader Market
Investing in index mutual funds gives you access to diverse sectors and stocks. That way, you can enjoy returns from a larger and diversified market segment through a single fund.
Taxation of an Index Fund
The returns on these funds are taxable and depend on two factors- holding period and fund type.
If you redeem units of an index fund within 12 months, your returns will attract a short-term capital gains tax (STCG) of 15%.
However, if your holding period is more than 12 months, you are liable to pay long-term capital gains tax of up to 10% on gains above 1 lakh.
Also Read: Taxation in Mutual Funds
Things to Consider before Investing in Index Funds
- Fund Performance
Before you invest, check the fund’s performance. An indicator of good fund performance is minimum tracking error. Index mutual funds work by replicating the performance of an index. However, there could be slight deviations from the index, which is known as tracking error. That’s why funds that have minimum tracking error are your best bet.
- Investment Horizon
Index funds are suitable for investors who are looking for long-term investment. The returns fluctuate in index funds. That’s why they are not ideal for short-term investment. In the long-term, say 7-10 years, help the fund show its full potential. - Risk
Index funds are highly volatile. You must be aware of the risks associated with index funds. To reduce index mutual fund risks, have a mix of actively managed funds and index funds. - Expense Ratio
Index funds are not actively managed. Hence, they have a lower expense ratio compared to actively managed funds. However, while investing in index mutual funds, check the expense ratio. The lower it is, the better your chances to get more percentage of the return the index fund generates.
Also read: 10 Best Mutual Funds To Invest In India With High Returns
Final Word
Over the past couple of years, index funds have been performing at par if not better than actively managed equity funds. Also, these funds cost less and have the potential to generate high returns in the long run. However, it’s advised that you consider your risk tolerance, taxation, fund performance, and overall cost, among others before investing. Considering investing in index mutual funds? Start putting your money to work in Navi Mutual Funds. Just download the Navi app on Android or iOS, and start investing today!
*Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
FAQs on Index Funds
Ans: The lock-in period for index funds is 3 years.
Ans: No, most of the index funds in India do not come with a dividend plan.
Ans: Yes, as index funds are market-linked products, you can lose money.
Ans: Here are some factors that you must consider before investing in an index fund:
Risks and returns
Expense ratio
Investment objective
Tax
Tracking error
Ans: Yes. However, the fee is much lesser compared to actively managed funds where the expense ratio is higher.
Ans: Ideally, you should buy the funds when the market is down and sell when it is high. Although there is no fixed time during which you can start investing in index funds, you should make such investments when the market is on the lower side to avoid a financial burden.
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