Top 5 Best Index Funds in India 2024

Are you searching for a straightforward way to venture into the stock market in India for 2024? Index funds might be your answer. These mutual funds are designed to closely follow a designated stock market index, offering a diversified portfolio that mirrors the performance of that index.

They invest in the same stocks and in the same proportion as the index they track. While there are several index funds in India boasting significant Assets Under Management (AUM), it’s crucial to remember that high AUM doesn’t always equate to superior performance. It’s essential to assess your investment goals and risk appetite before diving in. This guide is purely educational, aiming to provide you with insights as you consider your investment journey.

What Are Index Funds in India?

Index funds are a type of mutual fund designed to track the performance of a specific stock market index, like the NSE Nifty or BSE Sensex. Unlike actively managed funds where the fund manager frequently trades stocks to beat the market, index funds are passively managed. This means they simply replicate the index they follow, holding the same stocks in the same proportions. The goal isn’t to outperform the market but to mirror its returns. Because of this, index funds tend to have lower fees and are considered a more predictable, lower-risk investment compared to actively managed funds.

Key Points:

Simplicity and Predictability: Index funds aim to match, not beat, the performance of a market index. This makes them a straightforward and predictable investment option.
Passive Management: These funds are passively managed, meaning they replicate the composition of their benchmark index and don’t frequently change their holdings. This results in lower management fees.
Diversification: By investing in an index fund, you get exposure to all the stocks in the index, which helps spread risk.
Suitable for Risk-Averse Investors: Those who prefer stable returns and wish to avoid the risks associated with active management might find index funds appealing.
Limited Outperformance Potential: While lower risk, index funds generally won’t significantly outperform the market. Investors seeking higher returns might consider actively managed funds instead.

In essence, index funds offer an accessible way to invest in the stock market with a more predictable outcome and lower fees, making them a favored choice for many investors seeking steady, long-term growth.

Overview of the Top Index Funds in India 2024

Investing in index funds is a popular way to participate in the stock market with a diversified portfolio. Here’s a simplified overview of some top index funds in India:

1) UTI Nifty Next 50 Index Fund Direct-Growth

UTI Nifty Next 50 Index Fund Direct-Growth is a prominent fund offered by UTI Mutual Fund. As one of the best Nifty index funds in India, it aims to mirror the performance of the Nifty Next 50 Index, striving to match its returns before expenses. By investing in this fund, you’re essentially betting on the success of the next 50 companies poised for growth in the Nifty index.

Here are a few key points about the UTI Nifty Next 50 Index Fund – Direct Plan – Growth:

Plan Type: Direct Plan with Growth option, meaning lower expenses and no intermediary commissions.
Category: Falls under Index Funds/ETFs, specifically tracking the Nifty Next 50 index.
Fund House: Managed by UTI Mutual Fund, a well-known fund house in India.
NAV: As of 20th December 2023, the Net Asset Value (NAV) is ₹18.623, which reflects a decline of 2.95% from the previous value.
Crisil Rank: The fund is not ranked by Crisil, indicating that it may be newer or less commonly evaluated than other funds.
Fund Size: The total assets under management are ₹2728.08 Cr, which is 1.42% of the total investment in its category.
Expense Ratio: At 0.34%, the fund has a lower expense ratio compared to the category average of 0.25%, indicating efficient management and lower costs for investors.
Risk-O-Meter: Labeled as ‘Very High’, this suggests that the fund invests in securities that may have higher volatility and risk, suitable for investors with a corresponding risk appetite.

2) Axis Nifty Next 50 Index Fund Direct-Growth

Axis Nifty Next 50 Index Fund Direct-Growth is another notable option managed by Axis Mutual Fund. It targets the top Nifty 50 Index Fund’s returns, minus the expenses. This fund is a solid choice for those looking to invest in the broader market represented by the Nifty 50 companies, offering a blend of stability and potential growth.

Here are a few key points about the Axis Nifty Next 50 Index Fund – Direct Plan – Growth:

Type & Plan: This is a Direct Plan with a Growth option, meaning lower expenses and no intermediary costs.
Category: It falls under the Index Funds/ETFs category, specifically tracking the Nifty Next 50.
Fund House: Managed by Axis Mutual Fund, a well-known fund house in India.
Net Asset Value (NAV): As of 20th December 2023, the NAV is ₹12.4563, which reflects a -2.94% change, indicating recent fund performance.
Crisil Rank: The fund is not ranked by Crisil, a leading rating agency. This could be due to various reasons, including the fund’s size, age, or performance.
Fund Size: With ₹97.38 Cr in assets, it represents 0.05% of the investment in its category, indicating a relatively smaller fund size.
Expense Ratio: At 0.23%, the fund has a lower-than-average expense ratio compared to the category average of 0.25%. This means lower costs for investors.
Risk-O-Meter: The fund is rated as ‘Very High’ on the risk scale, suggesting a higher level of risk and potential reward. Suitable for investors with a high-risk appetite.

3) Motilal Oswal S&P BSE Low Volatility Index Fund Direct-Growth

Motilal Oswal S&P BSE Low Volatility Index Fund Direct-Growth is offered by Motilal Oswal Mutual Fund. It’s designed to follow the S&P BSE Low Volatility Index, focusing on stocks that have shown lower volatility. It’s an attractive option for investors seeking a more stable investment in the often unpredictable stock market.

Here are some key points about the Motilal Oswal S&P BSE Low Volatility Index Fund – Direct Plan – Growth:

Type and Category: The fund falls under the Index Funds/ETFs category and is a Direct Plan with a Growth option.
Fund House: Managed by Motilal Oswal Mutual Fund.
Net Asset Value (NAV): As of 20th December 2023, the NAV was ₹13.7958, reflecting a -1.57% change.
Crisil Rank: The fund is not ranked by Crisil, indicating that it may be newer or smaller compared to other funds.
Fund Size: The total assets under management are ₹31.0 Crore, which is 0.02% of the total investment in its category.
Expense Ratio: It has an expense ratio of 0.43%, which is lower than the category average of 0.25%. This ratio indicates the percentage of fund assets used for administrative and other operating expenses.
Risk Level: The fund is labeled as ‘Very High’ on the Risk-O-Meter, suggesting it may be more suitable for investors who can tolerate significant levels of market volatility and have a long-term investment horizon.

4) Nippon India Nifty SmallCap 250 Index Fund Direct-Growth

Nippon India Nifty SmallCap 250 Index Fund Direct-Growth is managed by Nippon India Mutual Fund. This fund targets the Nifty SmallCap 250 Index, which includes 250 small-cap companies. It’s a choice for those looking to invest in smaller companies with the potential for significant growth, though with higher risk.

Here are a few key points about the Nippon India Nifty Smallcap 250 Index Fund – Direct Plan – Growth:

Fund Type: It is a Direct Plan under the Growth option, falling in the Index Funds/ETFs category.
Fund House: Managed by Nippon India Mutual Fund, a well-known name in mutual fund investments.
Net Asset Value (NAV): As of 20th December 2023, the NAV is ₹26.7432, reflecting a -3.37% change, indicating the fund’s performance and unit value on that day.
Crisil Rank: The fund is not ranked by Crisil, a leading ratings agency, indicating there might not be enough data or performance history for a definitive ranking.
Fund Size: The total assets under management are ₹832.88 Cr, which is 0.43% of the total investment in its category, showing the fund’s scale in the index fund market.
Expense Ratio: At 0.32%, the fund’s expense ratio is slightly above the category average of 0.25%. This ratio indicates the percentage of the fund’s assets used for administrative and other operating expenses.
Risk-O-Meter: The fund is labeled as ‘Very High’ risk, suggesting it is suitable for investors who are willing to take substantial risk in anticipation of higher returns, typically associated with small-cap investments.

These points provide a snapshot of the fund’s nature, performance, and risk profile, which are crucial for making an informed investment decision.

5) Bandhan Crisil IBX Gilt April 2028 Index Fund – Direct Plan-Growth

Bandhan Crisil IBX Gilt April 2028 Index Fund – Direct Plan-Growth is a product of IDFC Mutual Fund. It aims to replicate the returns of the CRISIL Gilt 2028 Index, representing government securities maturing around the year 2028. It’s suited for investors seeking a safer investment, as government securities are generally considered low risk.

Key Points: Bandhan Crisil IBX Gilt April 2028 Index Fund – Direct Plan-Growth

Type & Plan: This is a Direct Plan with a Growth option under the Index Funds/ETFs category.
Fund House: Managed by IDFC Mutual Fund.
Net Asset Value (NAV): As of 20th December 2023, the NAV is ₹11.5379, reflecting a 0.02% change.
Crisil Rank: The fund is not ranked by Crisil, indicating it might be newer or less recognized compared to other funds.
Fund Size: The fund has assets totaling ₹4850.43 Crore, accounting for 2.53% of the investment in its category.
Expense Ratio: At 0.16%, the fund’s expense ratio is lower than the category average of 0.25%, indicating cost-efficient management.
Risk Level: Classified as having a ‘Moderate’ risk level, suggesting a balanced approach between risk and return.

This fund is a potential option for investors looking for a medium-term investment in government securities with a specified target maturity, offering a direct plan with a lower expense ratio compared to category averages. As with any investment, it’s essential to consider personal investment goals and risk tolerance.

Additional Insight

Investing in an index fund that tracks a broad market index like the Nifty Total Market Index allows you to diversify across around 750 stocks. This means you’re not just investing in one company or sector, but you’re spreading your investment across the market, which can help mitigate risk.

Each of these funds offers a unique approach to investing in the stock market, catering to different investor profiles, from those seeking stability to those willing to embrace higher risks for potentially higher returns. It’s crucial to consider your investment goals, risk tolerance, and the fund’s performance history before making a decision.

Conclusion: Are Index Funds Good For Investment in 2024?

As we look toward 2024, understanding the potential of index funds for investment is crucial. Index funds are types of passive mutual funds designed to replicate the performance of a specific index. Their main appeal lies in their simplicity and lower risk profile compared to actively managed funds. By mirroring an index, these funds aim to provide a stable and predictable growth path, making them a strategic choice for diversifying your investment portfolio.

However, it’s important to approach index funds with a strategic mindset. Not all index funds are created equal, and they should not be seen as a one-size-fits-all solution. Before investing, it’s essential to conduct thorough research to ensure that the specific index fund aligns with your financial goals, risk tolerance, and investment timeline. Consider factors such as the fund’s performance history, management fees, and the index it tracks.

It’s also wise to consider how much of your portfolio you want to allocate to index funds. While they can offer stability and lower risk, they may not provide the high returns that some investors seek from more aggressive strategies. Balancing your portfolio with a mix of investment types can help you achieve a more balanced risk-reward ratio.

In conclusion, index funds can be a valuable component of your investment strategy in 2024, offering a blend of stability and potential growth. However, they should be chosen carefully and used as part of a broader, well-researched investment plan. As with any financial decision, consulting with a financial advisor can provide tailored advice suited to your individual needs and goals. Remember, investing always carries risks, and it’s important to make informed decisions that reflect your personal circumstances.