Top Index Funds To Invest In 2024

You are a smart investor who is always looking at the various instruments and contracts the capital market can offer. Always reading about new concepts and their applications, you have read InsurancDekho’s articles on mutual funds and you have read about market indices and how the two are combined to offer investors the option of investing in Index Funds. Has all this information now got you wondering what the best Index Funds to invest in in the Indian capital market are? Do not worry, we at InsuranceDekho have got you covered. Read the following article to find out.

Why Consider Index Funds In 2024

Index Funds are essentially a combination of mutual funds and market indices. How it is done is that a mutual fund tries to replicate the composition of any market index in its portfolio and if done correctly, the risks and returns of the mutual funds get pegged to those of the market index the mutual fund is trying to track. This was just a cursory introduction to index funds, but if you would like to understand Index Funds in more detail.

Investing in index funds has a lot of benefits due to which you should consider investing in index funds. Some of them are mentioned below:

Reduction Of Risk

Since the portfolio of a mutual fund tries to replicate the composition of a market index, they end up investing in stocks of various sectors, leading to diversification of their investments. This reduces the risk of them losing their investors’ money.

Passive Management

Since index funds try to replicate the performance of the market index they are tracking, they are only concerned with earning gains approximately equal to what the market index earns. The fund managers do not try to outperform the market index, and this reduces the management cost of the fund. Hence, a smaller fee is paid, increasing the gains.

Professional Management

Another benefit of investing in index funds, or any mutual fund rather, is that the investments are managed by professional fund managers. This is a big benefit as the fund managers are usually much more experienced and well-versed in the capital market, leading to more efficient investment strategies and management.

Growth And Returns In The Long Run

The returns of the index funds replicate those of the market/sector depending on the market index the index fund tracks. When this investment is done with patience and consistency, the investor enjoys growth and gains in the long run since the economy usually grows in the long run.

Types Of Index Funds To Consider In 2024

Index Funds can be classified on various grounds. They can be classified according to the index they track i.e. whether it is a broad market index or a sector index, whether they track indices based on geography or even a specific factor. A detailed account of the types of index funds can be found here.
However, the two types of index funds we would be recommending in this article for investing in 2024 are both types of broad market index funds - Large Cap Index Funds and Medium Cap Index Funds. 

Large Cap Index Funds track different large-cap indices such as NSE NIFTY 50, and Sensex and mirror the underlying index while Medium Cap Index Funds track different medium-cap indices such as Nifty200 Momentum 30, S&P BSEMidCap etc. and try to replicate it.

Top 10 Index Funds In 2024

UTI Nifty200 Momentum 30 Index Fund

The UTI Nifty200 Momentum 30 Index Fund, offered by UTI Mutual Fund, is a medium-sized fund that has been going on for 3 years and 7 months. The fund’s returns for the last year were 63.9% while over its total duration, it has given its investors an average of 30.78% annual returns. The fund majorly invests in the Capital Goods, Automobile, Services, Financial, Energy and Communications sectors and is a high-risk fund. As per the portfolio’s documents, Trent Ltd., Tata Motors Ltd., NTPC Ltd., Bajaj Auto Ltd., and Bharti Airtel Ltd. are the top 5 investees the fund invests in. The fund charges an expense ratio of 0.46%.

Mirae Asset Equity Allocator FoF Scheme

The Mirae Asset Equity Allocator FoF (Fund of Funds) Scheme is offered from the house of Mirae Asset Mutual Fund. The fund started on September 8th of the year 2020 and for the time for which it has been going on, it has given the holders average annual returns of 27.04%. For the last year, it produced returns of 40.29%. Mirae Asset Equity Allocator FoF Scheme is an open-ended fund and carries above-average risk. The sectors that the fund invests in can not be listed as it is a Fund of Funds, but the top 3 investee funds of Mirae Asset Equity Allocator FoF Scheme are Mirae Asset Nifty 50 ETF - Growth, Mirae Asset Nifty Midcap 150 ETF - Growth and Mirae Asset Nifty Next 50 ETF - Growth. This Fund of Funds charges an expense ratio of 0.04%.

UTI Nifty 50 Index Fund

The UTI Nifty 50 Index Fund is another index fund that is offered by UTI Mutual Fund. It is a Large Cap Index Fund and has been running for 11 years and 8 months now. Over its tenure, it has created annual returns of 14.28% on average for its holders while for the last year, its return was 33.05%. The risk level of this fund is average, and it is investing majorly in the financial, technology, energy, consumer staples, and automobile sectors. The top 5 investee companies of UTI Nifty 50 Index Fund are HDFC Bank Ltd., Reliance Industries Ltd., ICICI Bank Ltd., Infosys Ltd., and ITC Ltd. The UTI Nifty 50 Index Fund charges an expense ratio of 0.18%.

SBI Nifty Index Fund

The SBI Nifty Index Fund is another large-cap index fund and it is offered by SBI Mutual Fund. Similar to the UTI Nifty 50 Index Fund, it has been going on for 11 years and 8 months and during this time, it has earned the holders a return of 13.98% as average annual return. Last year, its return was 33.07%. Being a large-cap index fund, its risk level is average. It majorly invests in the Financial, Technology, Energy, Consumer Staples and Automobile sectors and the top 5 investee companies of the SBI Nifty Index Fund are HDFC Bank Ltd., Reliance Industries Ltd., ICICI Bank Ltd., Infosys Ltd., and ITC Ltd. It charges an expense ratio of 0.2%.

Tata Nifty 50 Index Fund

The Tata Nifty 50 Index Fund, from Tata Mutual Fund, is the third fund in our list of identical funds that are large-cap index funds tracing the NSE Nifty 50 Index. It was also launched on January 1, 2013, like the two funds mentioned above and has been going on for 11 years and 8 months. Over this period, the fund has given the holders an average annual return of 14.37% while its return in the last year was 32.96%. Tata Nifty 50 Index Fund’s risk level is also average and it is investing majorly in the financial, technology, energy, consumer staples, and automobile sectors. The top 5 investee companies of this fund are HDFC Bank Ltd., Reliance Industries Ltd., ICICI Bank Ltd., Infosys Ltd., and ITC Ltd. It charges an expense ratio of 0.2%.

Tata BSE Sensex Index Fund

The Tata BSE Sensex Index Fund also comes from Tata Mutual Fund and this also started on January 1, 2013, and has been going on for 11 years and 8 months. This is also a large-cap index fund, tracing the BSE Sensex Index, and gives its holders a little lower returns than the large-cap index funds that track the NSE Nifty 50 Index like the three mentioned above. Over the time period it has been going on, it has given investors an average of 14.04% per annum while for the last year, the gains earned by this fund were 29.73%. Being a large-cap index fund, its risk is average, investing majorly in the financial, technology, energy, consumer staples, and automobile sectors while HDFC Bank Ltd., Reliance Industries Ltd., ICICI Bank Ltd., Infosys Ltd., ITC Ltd., Tata Consultancy Services Ltd., Larsen & Toubro Ltd. and Bharti Airtel Ltd. are the fund’s top holdings. This fund charges an expense ratio of 0.27%.

HDFC Index Fund - BSE Sensex 

The HDFC Index Fund - BSE Sensex is offered by HDFC Mutual Fund and has been running for 11 years and 8 months, with a starting date of January 1, 2013. This large-cap index fund earned a return of 29.84% in the last year while for the period for which it has been running as a whole, it has created gains of 14.46%  for its holders. It has an average risk profile and invests majorly in the financial, technology, energy, consumer staples, and automobile sectors. The top investees of the HDFC Index Fund - BSE Sensex are HDFC Bank Ltd., Reliance Industries Ltd., ICICI Bank Ltd., Infosys Ltd., ITC Ltd., Tata Consultancy Services Ltd., Larsen & Toubro Ltd. and Bharti Airtel Ltd. and it charges an expense ratio of 0.2%.

Motilal Oswal Nasdaq 100 FoF Scheme

The Motilal Oswal Nasdaq 100 FoF Scheme is an international investment scheme coming from Motilal Oswal Mutual Fund whose holdings all come from Nasdaq all the way from the United States Of America. The “Fund of funds” has been going on for 5 years and 10 months and has earned a return of 22.69% annually on average since its inception. Meanwhile, the returns this “Fund of funds” had earned a return of 34.38% in the last year. The sectors that the fund invests in can not be listed as it is a Fund of Funds, but its top investees are all in Motilal Oswal NASDAQ 100 ETF. This scheme charges an expense ratio of 0.24%.

Motilal Oswal Nifty Midcap 150 Index Fund

The Motilal Oswal Nifty Midcap 150 Index Fund is also offered by Motilal Oswal Mutual Fund and has been going on for 5 years and 1 month. This is a mid-cap index, fetching an average return of 31.53% annually while for the last year, it earned a return of 49.98% for its holders. Motilal Oswal Nifty Midcap 150 Index Fund invests majorly in the capital goods, financial, healthcare, services and automobile sectors while the top 5 investees of this scheme are Suzlon Energy Ltd., Max Healthcare Institute Ltd., The Indian Hotels Company Ltd., Lupin Ltd. and Persistent Systems Ltd.. The fund charges an expense ratio of 0.3%.

Bandhan Nifty 50 Index Fund

The Bandhan Nifty 50 Index Fund comes from Bandhan Mutual Fund and is a large-cap index fund. The fund started on January 1, 2013, and over its tenure, has returned its holders an annual gain of 14.41% on average. For the last year, the fund generated a return of 33.05%, investing majorly in the financial, technology, energy, consumer staples, and automobile sectors. The top holdings of Bandhan Nifty 50 Index Fund are HDFC Bank Ltd., Reliance Industries Ltd., ICICI Bank Ltd., Infosys Ltd., ITC Ltd., Tata Consultancy Services Ltd., Larsen & Toubro Ltd. and Bharti Airtel Ltd. Out of all the funds mentioned in this list, Bandhan Nifty 50 Index Fund charges the lowest expense ratio at 0.1%.

Factors to Consider When Choosing Index Funds

Just because we have provided a list of index funds does not mean the funds in that list are going to be ideal for everyone who reads it. Just like mutual fund S.I.P.s, choosing which index fund is going to suit you the best depends on your circumstances and you have to make that decision yourself. However, the following are some of the factors that should be kept in mind when choosing what index fund to invest in:

Risk Profile

Although the level of diversification an index fund reaches is very high, the risk still isn’t eliminated and various index funds have various risk levels. The investors must make sure that their appetite can bear the level of risk the index fund brings.

Returns

Just like the risk profiles, different investment schemes have different returns they can produce. Investors must check whether the gains offered by a scheme would fall in line with their financial goals.

Index

Perhaps the most important factor in choosing the index fund is the market index the fund tracks. It doesn’t make sense for an investor who wants to make gains by investing primarily in the entertainment sector and he goes and invests in a fund like Bandhan Nifty 50 Index Fund or any other fund that doesn't even have the entertainment sector as a sector it does not majorly invest in. Such an investor would be much better off investing in an index fund tracking a sector index related to the entertainment industry.

Frequently Asked Questions

Q1. What is a Fund Of Funds (FoF)?
Ans - Just like an investment fund has a portfolio made up of a large number of securities, investing in different securities from different companies and sectors, a Fund of Funds, instead of investing in various securities of various companies, invests in a portfolio made up of various investment funds. By such an arrangement, the Fund of Funds increases the degree of diversification, lowering the risk profile considerably.

Q2. What kind of taxes do I have to pay on my investments in index funds?
Ans - The taxes that you have to pay on index funds are levied on the profits made by selling your units in the index funds. If these units are sold within one year of purchase, you have to pay Short Term Capital Gains Tax which is 20%, while if the investment in index funds is redeemed after 1 year, a Long Term Capital Gains Tax of 12.5% is paid on the profit with an exemption limit of ₹1.25 Lakh in a financial year.

Q3. What is the expense ratio that these index funds charge?
Ans - In simple words, the expense ratio can be understood as the fee charged by these funds for managing your investment. It is charged in the form of a percentage of the total AUM (Assets Under Management) and is charged from the profits the fund’s investment makes.