7+ Best Index Funds in India

As per a survey conducted by SEBI on the investment scenario in urban India , only about 28.4% of people are aware of mutual funds.

That’s alarming because mutual funds are by far the most advertised mode of investment in India.

Chances are, even fewer people are aware of Index funds and their investment potential. Let’s learn more about that.

Source : https://www.sebi.gov.in/sebi_data/attachdocs/1491452612271.pdf

What are Index Funds?

Let’s start by learning a few terms.

So what is a market index?

A stock market consists of a lot of stocks and debentures from a set number of companies.

For example, the BSE or Bombay Stock Exchange makes up the stock of 30 big-capital companies. An index is basically a total of the performance of all these companies together.

How is this index calculated?

There are a lot of methods employed by different markets, the most common of which is aggregating the market capital and the price of shares of each company.

Very simply put, the market index of a stock market is the sum-total of the performance of all the companies in that particular stock market.

An Index Fund has stocks and bonds that follow a particular index.

For example, if an Index Fund tracks the BSE, it will invest in all funds of the BSE or a portfolio of funds from the BSE.

The portfolio of funds is usually based on parameters like market size, industry sector, and so on.

Index Funds Vs Mutual Funds

Index Funds are quite similar to Mutual Funds. In fact, in India, the two terms are almost used as synonyms. 

However, both differ in several ways : 

Investment Strategy

The major difference between Mutual funds and Index funds is in the investment strategy.

Index Funds track the index of a given market and their performance is directly proportional to the performance of the financial market they track. Mutual Funds on the other hand, track the market to outperform the market. An example will make this clear.

An Index Fund based on the BSE will perform as per the performance of the BSE.

This is because it will have an investment in all the stocks and debentures of the BSE. A Mutual Fund based on the BSE will choose from high-performing stocks of the BSE so as to gain higher profits and outperform the performance average of the market.

An Index Fund aggregates the market average while a Mutual Fund (tries to) aggregate the highest profits from active trading.

Passive Management

Index Funds are passively managed while Mutual Funds are actively managed.

Since Index Funds invest in all or almost all stocks and debentures of a financial market, they do not need the constant attention of fund managers.

In Mutual Funds, since the priority is on making as much of the high-tide of prices, investment decisions are regularly made during trading hours.

Expense Ratio

Being actively managed, fees for mutual funds are high. With less human intervention, the fee for managing Index Funds is lesser.

Index Funds Vs Stocks and Bonds

Index Funds, like Exchange Traded Funds (ETFs), consist of a bunch of stocks instead of the stocks of individual companies.

The major difference between the two would be the risk factor.

Index funds have less risk associated than individual stocks and bonds. It would need the market to crash completely for these funds to suffer severe losses.

And markets as we know, eventually recover in due time. Stocks, on the other hand, depend completely on the fate of the company invested in.

Should you invest in ETFs or Bonds? Know here

Benefits

The best propaganda of Index Funds is still the one by Warren Buffet. Buffet, hailed as the world’s most successful investor strongly recommends investing in Index Funds. He considers these funds as one of the best paying tools for retired years.

Here are 5 reasons Index Funds are beneficial.  – 

• Low Cost : Index Funds are passively managed and therefore incur lower man-management costs. Most of these funds have an annual expense cost, i.e. fund management cost of 1% or less. For Mutual Funds, it goes up to 2.25% or even more.
• Low Risk : The risk associated with Index Funds is lesser compared to stocks and debentures. This is due to the market index tracking factor.
• Long-Term Investment Beneficial : Index Funds are perfect for long term investment (2 years and more). If you are looking for investing, then forgetting about it for a couple of years, and then coming back to reap a decent profit, Index Funds are for you.
• Better returns than Traditional Savings: Index  Funds have better returns than traditional savings modes like bank savings and Fixed Deposits.

You Should Invest in Index Funds if You

• want to break free from traditional savings methods to grow money 
• are looking for long term investment
• Want to start with small investments
• do not want to go for daily or regular trading
• want to cut down on expense ratio

Index Funds are not for You if You

• are looking for maximum profits out of an investment. Go for stocks instead.
• are looking for short term returns

With the definitions in place, let us now see what are the best Index Funds in India as of October 2020 : 

1. Tata Index Sensex Fund
   

   Annual Return rate : 8.49%
   Net Asset Value as of October 1 2020 : Rs. 73.33
   AUM : Rs. 27 Crores 
   Market Cap Allocation : Large Cap
   Top 5 Sector Allocation : Financial, Energy, Technology, FMGC, Automobile

   

2. UTI Nifty Index
   

   Annual Return rate : 7.26%
   Net Asset Value as of October 1 2020 : Rs. 75.19
   AUM : Rs. 2,718 Crores 
   Market Cap Allocation : Large Cap
   Top 5 Sector Allocation : Financial, Energy, Technology, FMGC, Automobile
   
   

3. HDFC Index Sensex Fund

   Annual Return rate : 8.32%
   Net Asset Value as of October 1 2020 : Rs. 350.48
   AUM : Rs. 1,454 Crores
   Market Cap Allocation :  Large Cap
   Top 5 Sector Allocation : Financial, Energy, Technology, FMGC, Automobile

   

4. HDFC Index Fund Nifty 50 Plan

   Annual Return rate : 7.17%
   Net Asset Value as of October 1 2020 : Rs. 105.76
   AUM : Rs. 1,858 Crores
   Market Cap Allocation : Large, Medium
   Top 5 Sector Allocation : Financial, Energy, Technology, FMGC, Automobile

   

5. Nippon India Index Sensex

   Annual Return rate : 8.32%
   Net Asset Value as of October 1 2020 : 19.14
   AUM : Rs. 97 Crores
   Market Cap Allocation :Large
   Top 5 Sector Allocation : Financial, Energy, Technology, FMGC, Automobile

   

6. ICICI Prudential Nifty Index Fund
   

   Annual Return rate : 7.07%
   Net Asset Value as of October 1 2020 : Rs. 110.9
   AUM : Rs. 907 Crores
   Market Cap Allocation : Large, Medium
   Top 5 Sector Allocation : Financial, Energy, Technology, FMGC, Automobile

    

   

7. SBI Nifty Index Fund

   Annual Return rate : 6.97%
   Net Asset Value as of October 1 2020 : Rs. 101.13
   AUM : Rs. 909 Crores
   Market Cap Allocation : Large, Medium
   Top 5 Sector Allocation : Financial, Energy, Technology, FMGC, Automobile

   

8. IDFC Nifty Fund
   

   Annual Return rate : 7.52%
   Net Asset Value as of October 1 2020 : Rs. 24.15
   AUM : Rs. 233 Crores
   Market Cap Allocation : Large
   Top 5 Sector Allocation : Financial, Energy, Technology, FMGC, Automobile

   

Have you invested in Index Funds?

If yes, what has been your experience so far?

Let us know.