Best Index Funds in India 2025: Your Complete Guide
Low costs, solid returns, zero guesswork — here’s how to pick the right index fund for your portfolio.
If you’ve ever felt overwhelmed trying to pick the “right” stock or mutual fund, you’re not alone. That’s exactly why index funds have quietly become one of the most popular investment options in India — and for very good reason. They’re simple, affordable, and surprisingly powerful over the long term.
Whether you’re just starting out with a ₹500 SIP or you’re a seasoned investor looking to de-clutter your portfolio, index funds deserve a spot in your financial plan. In this guide, we walk you through everything — what index funds are, why they work, and the best index funds in India right now.
What Exactly Is an Index Fund?
An index fund is a type of mutual fund that simply mirrors a market index — like the Nifty 50 or the BSE Sensex. Instead of a fund manager hand-picking stocks (and charging you a premium for it), the fund just buys the same stocks in the same proportion as the index it tracks.
Think of it this way: the Nifty 50 index tracks the 50 largest companies listed on India’s National Stock Exchange. An index fund tracking the Nifty 50 will invest your money across all 50 of those companies — automatically, passively, and cheaply.
This “passive” approach means lower fees, less human error, and returns that closely match the broader market. It’s not flashy, but it works — and the data backs that up.
Did you know? SEBI data shows that over the last 5 years, roughly 70% of actively managed equity funds underperformed their benchmark indices. Index funds, by design, match the benchmark — which already puts them ahead of most active funds.
Why Are Index Funds So Popular in 2025?
The rise of index investing in India mirrors what happened in the US two decades ago. As investors became more educated and platforms like Zerodha, Groww, and INDmoney made investing dead simple, people started asking a very logical question: “Why am I paying a fund manager 2% a year if they can’t even beat the market?”
Index funds answer that question beautifully. Here’s why they’ve become a go-to choice for so many Indian investors:
- Ultra-low expense ratios — most top index funds charge between 0.10% to 0.25%, compared to 1–2.5% for active funds
- Instant diversification — one fund gives you exposure to 50 (or 100, or 500) companies across sectors
- Total transparency — you always know exactly which companies your money is in
- No fund manager risk — no dependency on one person’s judgement or strategy changes
- SIP-friendly — start with as little as ₹500/month and build wealth steadily
- Proven long-term performance — the Nifty 50 has delivered around 12% annualised returns over the past decade
Best Index Funds in India — Our Top Picks for 2025
Here’s a breakdown of the top-performing index funds across different categories. Whether you prefer large caps, mid caps, or even global exposure, there’s an option here for you.
One of the oldest and most trusted index funds in India. UTI’s strong track record and rock-bottom expense ratio make it a favourite for long-term, hands-off investors.
Backed by HDFC AMC’s reputed fund house, this fund has consistently mirrored the Nifty 50 with impressive accuracy. Great for investors who want reliability.
One of the largest Nifty 50 funds by AUM. ICICI Prudential’s scale and efficient management keep its tracking error consistently low.
Tracks the BSE Sensex — India’s iconic 30-stock benchmark. A solid choice if you want a slightly more concentrated large-cap portfolio with the lowest costs available.
Tracks the next 50 large companies after the Nifty 50. These are the rising stars — companies likely to enter the Nifty 50 in the future, offering higher growth potential.
Want to invest in Apple, Microsoft, Amazon, and 497 other US giants — all through a rupee SIP? This fund gives you global diversification at a reasonable cost.
Quick Comparison: Best Index Funds at a Glance
| Fund Name | Index Tracked | 5-Yr CAGR | Expense Ratio | Best For |
|---|---|---|---|---|
| UTI Nifty 50 | Nifty 50 | 15.46% | 0.17% | Long-term beginners |
| HDFC Nifty 50 | Nifty 50 | 15.38% | 0.20% | Reliability seekers |
| ICICI Pru Nifty 50 | Nifty 50 | 15.44% | 0.17% | Scale & efficiency |
| Nippon Sensex | BSE Sensex | 14.96% | 0.15% | Cost-first investors |
| DSP Nifty Next 50 | Nifty Next 50 | 17.62%* | 0.25% | Growth seekers |
| Motilal S&P 500 | S&P 500 (US) | 18.91%* | 0.61% | Global diversification |
*Annual returns as of 2025. Past performance is not a guarantee of future results.
How to Pick the Right Index Fund for You
Not all index funds are created equal — and even within the same category (like Nifty 50 funds), the details matter. Here’s what to look at before you invest:
1. Tracking Error — The Most Underrated Metric
Tracking error measures how closely a fund mirrors its benchmark. A lower tracking error means the fund is doing its job well. Anything below 0.10% is excellent. Always compare tracking errors between funds in the same category.
2. Expense Ratio — Every Percentage Point Counts
On a ₹10 lakh investment, a 1% difference in expense ratio can cost you lakhs over 20 years thanks to compounding. Always choose Direct Plans over Regular Plans — they cut out the middleman and save you 0.5–1% every year.
3. AUM — Size Matters (Sometimes)
A larger AUM generally means better liquidity and more stability. However, extremely large funds can sometimes be slower to replicate index changes. A fund with AUM above ₹1,000 crore is generally considered safe enough.
4. Fund House Reputation
Stick to established AMCs (Asset Management Companies) like UTI, HDFC, ICICI Prudential, Nippon, SBI, and Mirae Asset. They have long track records and strong operational infrastructure.
💡 Direct Plan vs. Regular Plan: Always Choose Direct
Regular plans have a hidden cost — the commission paid to your distributor. It might seem small (0.5–1%), but over 20 years, it compounds into a massive difference. Always invest through a Direct Plan on platforms like Zerodha Coin, Groww, or INDmoney.
Who Should Invest in Index Funds?
Index funds aren’t just for beginners. They work brilliantly for a wide range of investors:
- First-time investors who want market exposure without the complexity of stock picking
- Busy professionals who don’t have time to track their portfolio every week
- Long-term wealth builders planning for retirement, their child’s education, or a home purchase 10–20 years away
- Experienced investors who want a low-cost “core” holding alongside a few satellite investments
- Anyone frustrated with underperforming actively managed funds eating up returns through fees
If you’re risk-averse, the Nifty 50 or Sensex funds give you stability through blue-chip companies. If you’re comfortable with a bit more volatility for higher growth, mid-cap or Nifty Next 50 index funds are worth considering.
How to Start Investing in Index Funds — Step by Step
- Complete your KYC: If you haven’t done it yet, complete your Know Your Customer (KYC) verification online through any SEBI-registered platform. You’ll need your PAN card and Aadhaar.
- Choose a platform: Popular options include Zerodha Coin, Groww, INDmoney, and Paytm Money. All of them allow you to invest in Direct Plans with no commission.
- Pick your fund: Based on your goals and risk appetite, choose from the funds in our list above. When in doubt, a Nifty 50 index fund is always a safe starting point.
- Set up a SIP: Start a Systematic Investment Plan with whatever you can afford — even ₹500/month. Automate it so you don’t need to think about it every month.
- Stay the course: This is where most people fail. Market dips will happen. Don’t panic-sell. The longer you stay invested, the more compounding works in your favour.
Index Funds vs. Actively Managed Funds — The Honest Truth
There’s an ongoing debate in investing circles: active vs. passive. Here’s the honest picture for the Indian market.
Actively managed funds can outperform the index — and some do, especially in the mid and small-cap space where markets are less efficient. But consistently beating the index over 10–15 years is extremely rare, and the higher fees eat into whatever outperformance they achieve.
Index funds, on the other hand, are guaranteed to deliver market-matching returns (minus a tiny expense ratio). For most investors — especially those with a 10+ year horizon — this is more than enough to build significant wealth.
A SEBI study found that over a 5-year period, nearly 70% of actively managed large-cap funds failed to beat their benchmark indices. Index funds beat most active funds simply by showing up.
Frequently Asked Questions
Final Thoughts: Index Funds Are the Quiet Wealth Builders
Index funds don’t make for exciting dinner party conversation. They won’t give you overnight riches. But for the patient investor who stays the course, they have delivered — and will likely continue to deliver — steady, reliable wealth creation over the long term.
The Nifty 50 alone has delivered approximately 12% annualised returns over the past decade. If you had invested ₹10,000 every month for the last 10 years in a Nifty 50 index fund, you’d be sitting on a corpus of well over ₹23 lakhs today — from a total investment of just ₹12 lakhs.
That’s the power of staying invested, keeping costs low, and trusting the market to do what it does over time. Pick a fund from our list above, set up your SIP, and let time do the heavy lifting.
Investing is a marathon, not a sprint. And index funds are built for marathoners.
