In order to maximise profits, index funds mimic the performance of a stock market index, such as the Sensex or Nifty 50. One of the most popular passive investments, these funds are perfect for investors with a moderate appetite for risk due to their broad market exposure, minimal operational costs, and returns. This article consists of a comprehensive list of the top 20 Indian index funds for this year. If you are thinking about investing in index mutual funds, keep reading!
What are Index Funds?
An index fund is a mutual fund that invests in a market index, such as the Sensex or Nifty. Furthermore, the investment portfolio will include all the securities that make up the Sensex or Nifty. These funds provide lower-cost exposure to a bigger market sector to investors.
The Sensex and Nifty indexes reflect the largest corporations in free-float market capitalisation. Both indexes are supposed to benefit investors since the firms included in them are well-known and profitable. Because indexes are not shares, investors must invest in index components in the same proportion as the index.
How does an Index Fund Work?
Index funds are a popular choice of investment funds which follow a benchmark index, for example, the S&P 500 or Nasdaq 100. When an investor puts money in any index fund, that money gets invested in all the firms that make up an index fund.
Best Index Funds mimic a larger market index by holding the same equities in the same proportions as the Sensex or Nifty. Index funds, also known as passive funds, monitor a certain index and do not need a high degree of management. This is what distinguishes index funds from mutual funds and is the reason they are referred to as a passive investment.
Index funds have a lower risk than individual stock ownership since they are naturally diversified and aim to reflect the identical holdings of any index they follow. Market indexes often have a solid history.
Who Should Invest in Index Funds?
Investing your capital in index funds has long been considered as one of the most financially sound decisions you could ever make. These funds are reasonably priced, provide diversification in your portfolio, and typically produce enticing returns over time. In the past, index funds have outperformed other fund types that are actively managed by renowned investment houses.
Index funds generate revenue through returns. They are made to closely resemble the returns of the underlying stock market index, which is sufficiently diversified to limit losses and perform well. They are suitable for people who carry a low-appetite for risk.
Investing in Best Index Funds relies on your risk tolerance and financial objectives. Index funds are appropriate for conservative investors seeking stable returns. These Best Index Funds do not need much supervision. A Sensex or Nifty index fund is an alternative if you want to invest in stocks but don’t want to accept the risks associated with actively managed equity funds. Gains from these funds will be proportionate to the index’s upside.
Read More: Best Performing Mutual Funds in India
Best Index Funds to Invest in 2022
Choosing the top index funds to invest in is not an easy task. Investors should consider a lot of factors while looking for the best index funds to invest in; such as their risk appetite, their investment period etc. We have compiled a list of the best index funds 2022 for your reference.
| Top Index Fund | Net Asset Value |
| Franklin India NSE Nifty 50 Index-Growth | 138.04 |
| Aditya Birla Sun Life Nifty 50 Direct-Growth | 168.43 |
| Tata Index Nifty Direct | 109.86 |
| SBI Nifty Index Direct Plan-Growth | 150.74 |
| HDFC Nifty 50 Plan Direct-Growth | 157.74 |
| Nippon India Index Fund Sensex Plan Direct-Growth | 29.32 |
| UTI Nifty Index Fund Direct-Growth | 113.29 |
| IDFC Nifty 50 Index Fund | 35.48 |
| Tata S&P BSE Sensex Index Fund | 145.16 |
| ICICI Prudential Nifty Direct Plan-Growth | 170.57 |
| DSP Nifty 50 Index Fund Direct-Growth | 15.89 |
| HDFC Index Fund – S&P BSE Sensex Plan – Direct Plan | 516.27 |
| Axis Nifty 100 Index Fund Direct-Growth | 15.5 |
| LIC MF Index Fund Sensex | 109.99 |
| IDBI Nifty Index Fund | 32.40 |
| Taurus Nifty 50 Index Fund – Growth | 32.01 |
| IDBI Nifty Junior Index Fund Direct-Growth | 34.6 |
| L&T Nifty 50 Index Fund Direct-Growth | 19.08 |
| Sundaram Nifty 100 Equal Weight Fund – Direct Plan – IDCW | 64.30 |
| Motilal Oswal Nifty 200 Momentum 30 Index Fund – Direct Plan-Growth | 8.64 |
How to Invest in Best Index Funds?
- Research and Analysis
The first step is to pick where to put your money. So think about what you want to invest in and why it is a good investment:
- Business: How does the index fund invest its funds? Is it invested in pharmaceutical businesses developing new medications or in technical enterprises? Some funds focus on certain businesses while disregarding others.
- Market potential: What is the index fund’s market opportunity? Is the fund investing in pharmaceutical businesses because they are developing the next blockbuster medicine, or because they are cash cows that generate dividends? Some funds choose high-yielding companies, while others want high-growth stocks.
You should thoroughly investigate the fund’s investments to know precisely the amount you own. The labelling of index funds might be deceptive at times. However, you may look at the index’s holdings to discover what’s in the fund.
- Deciding the Best Index Funds to Invest In
After you’ve found a fund you like, think about other factors that might make it a good fit for your portfolio. The fund’s expenses are key concerns that might save or cost you tens of thousands of dollars over time.
- Costs: Look into the fees of any fund you’re considering investing in. A fund based on a similar index may charge up to 20 times the amount of another fund.
- Taxes: Mutual funds are less tax-efficient than ETFs for several legal reasons. Many mutual funds distribute taxable capital gains at the end of the year, whereas ETFs do not.
- Minimum investment amounts: Many mutual funds have a minimum initial investment amount, which may be several thousand dollars. On the other hand, many ETFs do not have this limitation, and your broker may even allow you to buy fractional shares for a few dollars.
- Buy Top Index Funds
After deciding which fund is ideal for your portfolio, the easy part begins: buying the fund. You may buy mutual funds directly from the supplier or via a broker. Buying a mutual fund via a broker, on the other hand, is often easier. If you wish to buy an ETF, you must go via your broker.
Factors to Consider While Choosing an Index Fund
There is no doubt that choosing to invest in an index fund is going to be one of the best financial decisions in any investor’s life. But there are many factors that should be considered for investors who are just starting their investment journey in index funds.
Fund Performance
Check the performance of the fund before investing. Minimum tracking error is a sign of strong fund performance. The best index funds operate by emulating an index’s performance. Tracking error is the term for any minor variations from the index that may occur. Your best bet is to invest in funds that have a low tracking error.
Investment Horizon
Investors should consider how long they can invest for because index funds usually perform better in long term. Investors wishing to make long-term investments might consider index funds. Index mutual funds have variable returns. They are therefore not the best choice for short-term investing. Help the fund reach its full potential over a long period of time, perhaps 7 to 10 years. Individuals with a long investing horizon might consider index funds. The fund’s return may fluctuate in the short term, but it usually averages out over time. It is critical to stick with the fund throughout the specified time horizon for the fund investments to perform properly.
Risk
Index funds are incredibly erratic. You need to be aware of the dangers posed by index funds. Mix actively managed funds and best index mutual funds to lessen the risks associated with index mutual funds.
Expense Ratio
Top Index funds are not managed actively. Their expense ratio is therefore lower than that of actively managed funds. Check the fee ratio before investing in any top index funds, nevertheless. Your chances of receiving a higher percentage of the return the index fund delivers are better the lower it is.
Benefits of Investing in Index Mutual Fund
Apart from the high returns that top index funds yield. There are numerous other benefits as well. They don’t have a high expense ratio as compared to mutual funds and they have higher returns due to exposure to a broader market. Here is a brief look at some of the most common benefits of investing in index funds.
- Low Expense Ratio: Due to their use of a passive investing method, index funds have lower expense ratios than other mutual funds. Therefore, index mutual funds may be a choice to explore if you’re looking for low-cost investment options.
- Transparency: Knowing the portfolio of the best index mutual funds is simple and straightforward, unlike active mutual funds. The securities that the fund holds can be identified simply by knowing its benchmark index.
- Access to a Larger Market: You can access a wide variety of industries and equities by investing in the best index mutual funds. In this manner, you can use a single fund to benefit from returns from a bigger and more diverse market segment.
What are the Fees Associated with Index Funds?
There are costs associated with index funds, but they are typically substantially cheaper than those of similar products. Active funds frequently impose costs of more than 1%, whilst many index funds offer fees of less than 0.2%.
Typically, index funds have lower cost ratios than other products. If two funds, for example, follow the Nifty, each will generate a comparable return. The fund with the lowest cost-to-income ratio will provide a greater return on investment.
Conclusion
These are some of the best index funds on the market, offering investors a low-cost way to invest in various businesses while enjoying the benefits of diversification and lower risk. With such benefits, it’s no surprise that these funds are among the largest on the market.
FAQs
Index funds are an excellent choice for first-time investors who want to experience the thrill of investing without incurring unnecessary risks.
Index funds are a simple approach to building wealth, and it pays to concentrate on S& P 500 funds in particular. This might be your one-time opportunity to become a billionaire in your lifetime.
A three-fund portfolio consists of three index funds or ETFs and is sometimes considered enough for a novice.
Index funds strive to outperform the market, while active mutual funds seek to outperform the market. Fees for active mutual funds are often greater than for index funds. Over time, index fund performance is pretty predictable; active mutual fund performance is far less predictable.
Because most rules demand it, index funds, consequently, distribute any income or dividends earned by the fund’s individual holdings after deducting the fund’s costs.
Currently, the best index fund to invest in is DSP Nifty 50 Equal Weight Index Fund Direct Growth.
Top index funds are a great investment method in 2022 because they have low expenses and they diversify your investment over a large number of industries.
Also Read: High Risk Mutual Funds & Low Risk Mutual Funds
