An index fund is a kind of mutual fund that constructs its portfolio by tracking the composition of a standardised market index. This could be any of the benchmark indices in the stock market such as the Nifty 50 or the Sensex.
Note that the index fund will not only invest in the stocks as those the index invests in, it will also maintain the ratio in which the index has invested in these stocks. For instance, in the Nifty 50 the weightage for HDFC Bank is 10.29% while that of Infosys, it is 7.81%. An index fund that follows the Nifty 50 will allocate the same weightages to these stocks in its portfolio. So, the index fund doesn’t make investment calls on its own, it just imitates the index.
The aim of an index fund is to replicate the performance of an index in terms of the returns that the index generates. This replication is done at a minimal cost. This is the reason why index funds are also called passive funds. They are not actively managed. The fund managers do not make any buy and sell calls. So, there are no transaction costs. Naturally, the expense ratio and other fees for managing index funds are much lesser than those of actively managed funds. This makes index funds cost-efficient.
Read this article to know more on index funds – How are index funds different from large-cap funds?
Best index funds to invest in 2021
If you are looking to invest your money in index funds, you can consider the following list of the best index funds in India that have done well in the past.
Launched in 2002, this fund has a good track record of closely following the market index S&P BSE Sensex. The fund has no entry load while the exit load of 1% is applicable only if you redeem within a month. As of 3rd February 2021, the NAV of the fund (dividend option) was Rs 32. The expense ratio of the fund is 1.08%. The fund’s five year Compounded Annual Growth Rate (CAGR) return is 15.55%. The three-year return is 12.8% while the one-year return is 26.22%. If you had invested Rs 10,000 as monthly SIP in the fund for the last three years, your corpus will be Rs. 4.81 lakh.
ICICI Prudential Nifty Index fund
This fund has been a part of the index fund category for close to two decades. It was launched in 2002. So, the fund has managed to garner more than Rs 1,217 crore of Assets Under Management (AUM). The fund closely follows the Nifty 50 Index. The fund has no entry load or exit load. As of 3rd February 2021, the NAV of the fund (dividend option) was Rs. 19.14. The expense ratio of the fund is low at 0.45%. The fund’s five-year CAGR return is 15.34%. The three-year return is 11.62% while the one-year return is 26.53%. If you had invested Rs. 10,000 as monthly SIP in the fund for the last three years, your corpus will be Rs. 4.76 lakh.
This fund was launched in 2002 and has AUM of more than Rs. 1770 crore. The fund closely follows the S&P BSE Sensex. The fund has no entry load while the exit load of 0.25% is applicable only if you redeem within three days of purchasing the fund units. As of 3rd February 2021, the NAV of the fund was Rs 448.49. Note that this fund doesn’t have a dividend option. The expense ratio of the fund is very low at 0.30%. The fund’s five year CAGR return is 16.58%. The three-year return is 13.41% while the one-year return is 26.56%. If you had invested Rs. 10,000 as monthly SIP in the fund for the last three years, your corpus will be Rs. 4.83 lakh.
This fund is one of the oldest funds in the index funds category. It was launched in 2000 and has AUM of more than Rs. 3,173 crore. The fund closely follows the Nifty 50 Index. The fund has no entry load or exit load. As of 3rd February 2021, the NAV of the fund (dividend option) was Rs. 49.17. The expense ratio of the fund is one of the lowest at 0.14%. The fund’s five-year CAGR return is 15.96%. The three-year return is 12.17% while the one-year return is 27%. If you had invested Rs. 10,000 as monthly SIP in the fund for the last three years, your corpus will be Rs. 4.79 lakh.
This fund was launched in 2002 and has Assets Under Management (AUM) of more than Rs. 950 crore. The fund closely follows the Nifty 50 Index. The fund has no entry load while the exit load of 0.2% is applicable only if you redeem within 15 days of purchasing the fund units. As of 3rd February 2021, the NAV of the fund (dividend option) was Rs. 65.04. The expense ratio of the fund is 0.48%. The fund’s five-year CAGR return is 15.31%. The three-year return is 11.44% while the one-year return is 25.98%. If you had invested Rs. 10,000 as monthly SIP in the fund for the last three years, your corpus will be Rs. 4.74 lakh.
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