Introduction
Renowned investors like Warren Buffet advise retail investors to invest in index funds. These funds offer a low-cost and diverse investing approach in the financial markets. They monitor a specific market index like NIFTY, S&P 500, etc., and are free from fund managers’ biases. Their expense ratio is lower than actively managed funds and is an attractive solution for long-term investors who want broad market exposure with minimum expenses.
What are index funds?
Index funds are specifically designed to mirror the components of a particular stock market index. They can be categorised as Exchange-Traded Funds (ETFs) or mutual funds. Index funds hold the same assets as their underlying index without actively buying or selling securities, making them a convenient and efficient investment option.
Since the fund replicates an existing index and there are limited adjustments and research, no fund managers are actively managing the fund. Thus, the expense ratio tends to be lower than actively managed funds. Index funds are the best options for investors seeking to generate wealth over the long term of 5 years or more.
7 top index funds to invest in India in 2024
1. UTI Nifty 50 Index Fund Direct-Growth
This fund invests in stocks of companies included in the Nifty 50 index. As of January 31, 2024, its fund size was Rs. 15,301 crore. It recorded trailing returns of 28.02% for one year, 15.82% for three years, and 16.58% for five years. The fund doesn’t attract any Exit Load.
2. SBI Nifty Index Direct Plan-Growth
This scheme invests in all the stocks comprising the Nifty 50 Index. As of February 18, 2024, it had an expense ratio of 0.18%. It allocates your investment in various sectors, including financial, technology, automobile, consumer staples, energy, and others. The top stock holdings are Reliance, HDFC Bank, Infosys, ICICI Bank, etc.
3. HDFC Index Fund Nifty 50 Plan-Growth
HDFC Index Fund Nifty 50 held Assets under Management (AUM) worth Rs. 12,183 crore as of January 31, 2024. It attracts an Exit Load of 0.25% if redeemed within three days. The fund’s three-month return, starting from December 2023, was 12.29%, while the returns of the Nifty 50 index were 12.22%.
4. Motilal Oswal Small Cap 250 Index Fund Direct-Growth
This fund corresponds to the performance of the Nifty Small Cap 250 index. Its fund size was Rs. 661 crore as of January 31, 2024. It had an expense ratio of 0.36% as of February 16, 2024. There are a total of 250 holdings, comprising companies like Suzlon Energy, Kei Industries, BSE, Cyient, Angel One, Multi Commodity Exchange of India, etc.
5. ICICI Prudential Nifty 50 Index Direct Plan-Growth
ICICI Prudential Nifty 50 Index has 50 holdings and an AUM worth Rs. 6,758 crore as of January 31, 2024. The fund’s market capitalisation allocation is 79.37% in giant-cap, 10.30% in large-cap, and 10.33% in mid-cap stocks. The top sector holdings include financial, energy, technology, consumer staples, automobiles, materials, and others.
6. Nippon India Nifty Small Cap 250 Index Fund Direct-Growth
This fund mirrors the performance of the Nifty Small Cap 250 index. Its trailing returns over different periods are 68.13% (one year), 30.87% (three years), and 39.05% (since launch). As of January 31, 2024, its AUM was Rs. 1,054 crore. The fund does not attract any Exit Load. The minimum SIP investment required is Rs. 1000.
7. DSP Nifty 50 Equal Weight Index Fund Direct-Growth
DSP Nifty 50 had a fund size of Rs. 1,029 crore as of January 31, 2024. Its expense ratio for the direct plan was 0.4% as of February 16, 2024. Its top stock holdings include Tata Motors, ONGC, Bajaj Auto, Adani Ports and Special Economic Zone, Bharti Airtel, Hero Motocorp, etc.
Conclusion
Index funds mirror stock market indices. They are passively managed and do not demand adjustments or due diligence. One of the most prominent advantages of investing in index funds is that they are free from the biases of fund managers. They also have a relatively lower expense ratio than actively managed funds.
Index funds are an ideal choice for cost-conscious investors. If you add them to your portfolio, you can reduce risks, boost long-term growth, and enjoy the convenience of a strategy replicating the market. ​​​​​​​
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