Which Is the Best Index Mutual Fund in India? A Complete Guide for 2025
In recent years, index mutual funds in India have gained tremendous popularity due to their low-cost structure and long-term performance potential. With growing awareness around passive investing, more and more retail investors are now exploring index funds as a smart and simple way to grow wealth. But with so many options available, the big question arises—Which is the best index mutual fund in India?
In this comprehensive blog post, we will answer this question by evaluating the top-performing index mutual funds, understanding their benefits, comparing expense ratios, and exploring how to choose the right fund for your financial goals.
🌟 What Is an Index Mutual Fund?
An index mutual fund is a type of mutual fund that aims to replicate the performance of a particular market index like Nifty 50, Sensex, Nifty Next 50, or Nifty 100. Instead of actively selecting stocks, these funds passively invest in all the stocks that constitute a specific index in the same proportion.
✅ Key Features of Index Funds:
- Passive Management
- Low Expense Ratio
- Broad Market Exposure
- Long-Term Growth Potential
📈 Why Should You Consider Investing in Index Mutual Funds?
If you’re someone looking for low-cost, diversified, and relatively stable investment options, index funds can be an excellent choice. Here’s why:
1. Lower Cost Structure
Index funds don’t require active fund management, which reduces fund manager fees and operational costs. Most top index funds charge an expense ratio as low as 0.10% to 0.30%.
2. Consistent Performance
By mimicking market indices like Nifty 50 or Sensex, index funds tend to deliver returns close to the market average. Over the long term, this helps investors build reliable and consistent wealth.
3. Ideal for Long-Term Goals
Index funds are ideal for goals like retirement planning, children’s education, or wealth creation over a period of 10–15 years.
📊 Top 7 Best Index Mutual Funds in India (2025 Updated List)
Below are the most popular and top-performing index mutual funds you can consider in 2025 based on historical returns, fund size, tracking error, and expense ratio.
1. Nippon India Nifty 50 Index Fund
- Benchmark: Nifty 50
- Expense Ratio (Direct Plan): ~0.19%
- 3-Year CAGR: ~17.5%
- Tracking Error: Low
- Minimum SIP Investment: ₹100
✅ One of the most cost-efficient and consistently performing index funds in India. It tracks the Nifty 50 index closely and is ideal for beginners.
2. HDFC Index Fund – Nifty 50 Plan
- Benchmark: Nifty 50
- Expense Ratio: ~0.20%
- 3-Year CAGR: ~17.2%
- AUM: ₹10,000+ Crores
✅ A reliable, large AUM fund from one of India’s top fund houses. It has consistently mirrored the performance of Nifty 50 with minimal tracking error.
3. ICICI Prudential Nifty Next 50 Index Fund
- Benchmark: Nifty Next 50
- Expense Ratio: ~0.35%
- 3-Year CAGR: ~19%
- Minimum SIP: ₹100
✅ This fund tracks the Nifty Next 50 index, which includes the next 50 stocks after Nifty 50. It offers exposure to emerging large-cap stocks.
4. UTI Nifty 50 Index Fund
- Benchmark: Nifty 50
- Expense Ratio: ~0.18%
- 3-Year CAGR: ~17.3%
- Fund Size: ₹8,000+ Crores
✅ Offers very close tracking to the Nifty 50 with a strong performance history. A great low-cost passive option for long-term wealth creation.
5. SBI Nifty Index Fund
- Benchmark: Nifty 50
- Expense Ratio: ~0.22%
- 3-Year CAGR: ~17.4%
- Risk Level: Moderate
✅ Backed by India’s largest bank, this fund provides a stable option for passive investors seeking trust and performance.
6. Motilal Oswal Nifty 500 Index Fund
- Benchmark: Nifty 500
- Expense Ratio: ~0.26%
- Returns: ~16.8% CAGR (3 Years)
- Coverage: 90%+ of India’s listed market cap
✅ One of the most diversified index funds, offering exposure across large, mid, and small-cap companies in India.
7. Axis Nifty 100 Index Fund
- Benchmark: Nifty 100
- Expense Ratio: ~0.25%
- Returns: ~17% CAGR
- Fund Manager: Experienced Axis team
✅ Perfect for investors who want broader diversification than just the Nifty 50 without going too far into mid/small caps.
🧮 Key Factors to Compare Before Choosing the Best Index Fund
1. Expense Ratio
Lower is better. Even a small difference (like 0.20% vs. 0.60%) can lead to major gains or losses in the long run.
2. Tracking Error
Tracking error shows how closely a fund tracks its benchmark. Lower tracking error = more accurate performance.
3. AUM (Assets Under Management)
Higher AUM means the fund is more stable and has better liquidity.
4. Fund House Reputation
Stick to AMCs like HDFC, ICICI, Nippon, SBI, and UTI which have strong market credibility.
🧠 Who Should Invest in Index Funds?
Index mutual funds are ideal for:
- Beginners looking for safe and stable returns
- Long-term investors planning for retirement or big life goals
- Passive investors who don’t want to track markets daily
- Cost-sensitive investors looking to avoid high management fees
📅 How to Start Investing in an Index Fund?
Here are the simple steps to begin:
1. Choose a Fund
Compare based on index type (Nifty 50, Nifty Next 50, Nifty 500), cost, and past returns.
2. Select SIP or Lump Sum
Start a monthly SIP or make a one-time investment. SIP is usually preferred for long-term compounding.
3. Use Trusted Platforms
You can invest through apps like Groww, Zerodha Coin, Paytm Money, Kuvera, or directly via AMC websites.
💡 Tips for Maximizing Returns with Index Funds
- Stay Invested Long-Term (5–15 Years)
- Avoid Timing the Market
- Diversify Across Index Types
- Track Your Portfolio Annually
- Combine with ELSS or Debt Funds for Balance
🧾 Taxation of Index Funds in India
Index funds are taxed like any equity mutual fund:
- Short-Term Capital Gains (STCG): 15% (if sold before 1 year)
- Long-Term Capital Gains (LTCG): 10% (if gains exceed ₹1 lakh per year after 1 year)
🚫 Common Mistakes to Avoid
- Investing based solely on past returns
- Ignoring expense ratios
- Choosing too many index funds (over-diversification)
- Not staying invested during market corrections
📘 Case Study: 10-Year SIP in Nifty 50 Index Fund
Let’s assume you invested ₹5,000 per month in a Nifty 50 index fund from June 2015 to June 2025.
- Total Investment: ₹6,00,000
- Average CAGR: ~13.5%
- Portfolio Value: ₹11,80,000+ (approx.)
That’s nearly double your investment in 10 years!
📣 Final Thoughts: Which Is the Best Index Mutual Fund in India?
There is no one-size-fits-all answer, but here are top picks for different needs:
- Best for Beginners: Nippon India Nifty 50 Index Fund
- Most Diversified: Motilal Oswal Nifty 500 Index Fund
- High-Growth Potential: ICICI Prudential Nifty Next 50 Fund
- Low-Cost Classic Choice: HDFC Nifty 50 Index Fund
Always choose the fund that aligns with your risk tolerance, investment goals, and time horizon.
📝 FAQs: Best Index Funds in India
Q1. Which index fund is best for beginners?
Nippon India Nifty 50 Index Fund and HDFC Index Fund – Nifty 50 Plan are great for first-time investors.
Q2. Are index funds safe?
Yes, they are generally safer than actively managed funds due to broad market exposure and passive strategy.
Q3. Can I lose money in index funds?
Yes, short-term volatility can cause losses, but long-term investing tends to deliver positive returns.
Q4. How much should I invest monthly?
Start with as low as ₹500–₹1000 SIP and gradually increase as your income grows.
If you’re looking for a low-cost, high-discipline, market-mirroring investment, index mutual funds are your best bet. Do your research, stay consistent, and let compounding work its magic!