Best Index Mutual Funds for Investments 2025

Index Funds are no longer just a Western concept — they’re becoming increasingly popular among Indian investors. In fact, index funds and ETFs now account for over 17% of India’s mutual fund industry’s AUM (Assets Under Management) as of 2025, up from less than 4% a decade ago (AMFI data).

Why this surge? Because index funds make Investing simple. Instead of tracking individual stocks, they mirror an index like the Nifty 50 or Sensex, giving investors exposure to India’s top companies with very low costs. Historically, the Nifty 50 TRI has delivered ~13–14% CAGR over the last 10 years, proving that Passive Investing can match or even outperform many actively managed funds.

But here’s the catch — not all index funds are the same. From broad Market funds to Next 50, sectoral, and even global index funds, each comes with different risk-return profiles. Choosing the right one depends on your goals.

This article will break down the types of index funds in India, compare their performance, and help you understand which option could work best for your portfolio.

What is an Index Fund?

An index fund is a type of mutual fund or ETF that tracks a Market Index. For example -- A Nifty 50 Index Fund holds the same 50 companies in the same proportion as the Nifty 50 index.

If Nifty 50 rises by 1%, the fund’s NAV will also rise by nearly 1% (minus expenses).

Unlike active funds, index funds do not aim to beat the market. Instead, they match the market’s performance with minimal costs.

Why Index Funds Are Becoming Popular in India

1. Low Cost (Expense Ratio) – Since there’s no active management, index funds charge as low as 0.1% – 0.3%, compared to 1% – 2% for active funds.

2. Market Outperformance by Passive Investing – Many active funds are struggling to beat their benchmarks consistently. Data from SPIVA reports shows over 85% of Large cap funds underperform their benchmarks over 10 years.

3. Transparency – You always know what you’re investing in.

4. Ideal for Long-Term Wealth Creation – Perfect for SIP investing and Retirement planning.

Top 9 Best Performing Index Funds FY 25 - 26

All the funds mentioned above are ideal, we are giving you detailed analysis of 5 funds.

Types of Funds in Passive Index Funds

Passive index funds are investment vehicles designed to replicate the performance of a specific market index. Here are the types of funds that fall under the category of passive index funds:

1. Equity Index Funds

These funds track equity indices like the Nifty 50, Sensex, or global indices such as the S&P 500. Examples:

• Nifty 50 Index Fund
• Sensex Index Fund
• S&P 500 Index Fund

2. Exchange-Traded Funds (ETFs)

ETFs are similar to index funds but trade like stocks on exchanges. They track a variety of indices, including:

• Nifty ETFs
• Sensex ETFs
• Nasdaq 100 ETFs

3. Debt Index Funds

These funds replicate the performance of bond indices, providing exposure to fixed-Income securities. Examples:

• Bharat Bond ETF
• 10-Year G-Sec Index Fund

4. International Index Funds

These funds provide exposure to foreign markets by tracking indices from other countries or regions. Examples:

• Nasdaq 100 Index Fund
• S&P Global 100 Fund

5. Sectoral or Thematic Index Funds

These funds track indices focused on specific sectors or themes, such as IT, banking, or healthcare. Examples:

• Nifty Bank Index Fund
• Nifty IT Index Fund

6. Gold ETFs

Though not traditional index funds, gold ETFs function like Passive Funds by tracking the price of gold.

7. Multi-Asset Passive Funds

These funds passively invest in a combination of asset classes, such as equity, debt, and gold, based on predefined indices.

Why to Invest in Index Funds in India?

Some of the benefits of investing in Index Funds are:

1. Diversification

An index is a collection of different stocks and securities. They offer diversification to the investor which is the main motive of Asset Allocation. This ensures that the investor does not have all their eggs in one basket.

2. Less Expenses

Index funds have lower operating expenses compared to other mutual fund schemes. Here, the fund managers do not require a separate team of research analysts to carry out in-depth research of the companies, which usually involves significant costs. In index funds, the manager just needs to replicate the index. Therefore, the expense ratio is lower in the case of index funds.

3. Less Managerial Influence

Since the fund simply follows the movement of a particular index, the manager doesn’t have to choose what stocks to invest in. This is a plus point since the manager’s own style of investing (which may not always align with market trends) does not influence the fund.

Type of Index Mutual Funds

The weightage of a company in the Sensex or Nifty depends on its free float market capitalization. It is a percentage of the total market capitalization of the index. So, if the market capitalization of a company is Rs 1 crore, while that of the index is Rs 200 crore, its stock has a weightage of 0.5%.

1. SENSEX Index Funds

These index funds track the BSE SENSEX as the benchmark index and invest in 30 companies on the BSE Sensex based on weightage logic as discussed above. These Types of Mutual Funds are backed by ETFs (Exchange Traded Fund) traded on the exchange.

2. NIFTY Index Funds

These index funds track the NSE NIFTY 50 as the benchmark index and invest in 50 companies on the Nifty 50 based on weightage logic as discussed above. These types of Mutual Funds are backed by ETFs (Exchange Traded Funds) traded on the exchange.

3. NIFTY Junior Index Funds

These index funds track the NSE NIFTY Junior 50 as the benchmark index and invest in 50 companies on the NSE NIFTY Junior 50 based on weightage logic as discussed above. These types of mutual funds are backed by ETFs (Exchange Traded Funds) traded on the exchange.

Types of Passive Index Funds in India

Passive index funds are mutual funds designed to mirror the performance of a particular market index rather than trying to beat it. They provide a low-cost, transparent, and efficient way for investors to participate in equity, debt, or even commodity markets.

Below are the major types of passive index funds available in India:

1. Equity Index Funds

These funds track stock market indices like the Nifty 50, Sensex, or international benchmarks such as the S&P 500. They are ideal for investors seeking equity exposure with long-term growth potential.

Examples:

• Nifty 50 Index Fund
• Sensex Index Fund
• S&P 500 Index Fund (FoF in India)

2. Exchange-Traded Funds (ETFs)

ETFs function like index funds but trade on stock exchanges similar to shares. They offer liquidity and real-time pricing.

Examples:

• Nifty ETFs
• Sensex ETFs
• Nasdaq 100 ETFs

3. Debt Index Funds

These funds replicate bond or fixed-income indices, giving investors predictable returns and portfolio stability.

Examples:

• Bharat Bond ETF
• 10-Year G-Sec Index Fund

4. International Index Funds

International index funds invest in global markets, helping Indian investors diversify beyond domestic equities.

Examples:

• Nasdaq 100 Index Fund
• S&P Global 100 Fund

5. Sectoral or Thematic Index Funds

These funds track sector-specific indices, Offering targeted exposure to industries like banking, IT, or healthcare.

Examples:

• Nifty Bank Index Fund
• Nifty IT Index Fund

6. Gold ETFs

Gold ETFs passively track the price of gold. Though not traditional stock indices, they provide an effective hedge against Inflation and market volatility.

7. Multi-Asset Passive Funds

These funds invest across multiple asset classes such as equity, debt, and gold in predefined proportions, offering balanced diversification.

Why Should You Invest in Index Funds in India?

Index funds are gaining popularity among Indian investors due to their simplicity, transparency, and low cost. Here are some reasons why they can be a strong choice:

1. Diversification

Since index funds track a basket of securities, investors get automatic diversification across multiple companies and sectors. This reduces the risk of relying too much on one stock.

2. Low Expense Ratio

Unlike actively managed funds, index funds don’t require high-cost research teams. Fund managers simply replicate the index, keeping expense ratios typically between 0.1%–0.5%, compared to 1.5%–2% for active funds.

3. Minimal Human Bias

Because they follow an index, index funds are free from a manager’s subjective biases or misjudgments. Returns purely depend on market performance.

Popular Types of Index Mutual Funds in India

The weightage of companies in Nifty or Sensex depends on free-float market capitalization. Here are some common index fund categories:

1. Sensex Index Funds

Track the BSE Sensex, replicating 30 large companies.

2. Nifty 50 Index Funds

Track the Nifty 50, replicating India’s 50 most valuable companies.

3. Nifty Next 50 Index Funds

Track the Nifty Next 50, i.e., companies ranked 51–100 by market cap. These offer higher growth potential but come with higher risk.

Why Passive Index Funds Are Gaining Popularity

The shift towards passive investing is visible globally and in India.

• In 2024, Gold ETFs in India saw 63% AUM growth, reaching ₹44,595 crore by December (AMFI data).

• More than 300 passive funds delivered up to 51% returns in 2024, led by Mirae Asset NYSE FANG+ ETF (50.9%), Motilal Oswal Healthcare ETF (40.6%), and CPSE ETF (37.8%).

• Passive mutual funds in India attracted ₹1.32 lakh crore inflows in 2024, with AUM crossing ₹11 lakh crore by September — a 1.5x growth in just one year.

This growth reflects investors’ increasing trust in cost-effective, low-maintenance investment strategies.

Passive Funds vs Active Funds

Here’s a quick comparison:

Risks of Investing in Index Funds

While index funds are cost-efficient, they are not risk-free.

• Market Risk: Returns depend entirely on index performance. If the market falls, so does the NAV.

• No Flexibility: Since funds can’t deviate from the index, they may miss opportunities outside of it.

• Tracking Error: Slight deviations from the index due to expenses or fund structure.

Experts suggest allocating 5–10% of your portfolio to index funds for long-term wealth creation while balancing risks.

How to Invest in Index Mutual Funds Online?

1. Open Free Investment Account for Lifetime at Fincash.com.

2. Complete your Registration and KYC Process

3. Upload Documents (PAN, Aadhaar, etc.). And, You are Ready to Invest!

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FAQs

1. Why invest in index mutual funds?

A: They reduce stock-specific risks, offer diversification, and are suitable for long-term investors.

2. How to select the right index fund?

A: Check expense ratio, tracking error, fund house reputation, and long-term performance.

3. Do index funds guarantee returns?

A: No. They replicate the market index and are subject to market fluctuations.

4. Are dividends paid?

A: Some index funds offer dividend options, but most investors prefer growth plans for compounding.

5. Who should invest?

A: Ideal for risk-averse investors, beginners, and those looking for long-term wealth creation at low costs.