Types of Index Funds in India

December 6, 2023

Types Of Index Funds In India

  • Equity Index Funds
  • Bond Index Funds
  • Sector Index Funds
  • Commodity Index Funds
  • International Index Funds
  • Dividend Index Funds
  • Growth Index Funds
  • Value Index Funds
  • Small-Cap Index Funds

Content :

What Are Index Funds In India?

Index funds are mutual funds that aim to replicate the performance of a specific benchmark index, such as the NSE Nifty or SENSEX. They hold securities in the same proportion as the index. So, if a company represents 2% of the SENSEX, it would be 2% of a corresponding index fund.

Consider the scenario of the UTI Nifty Index Fund. This fund replicates the NSE Nifty 50 Index, encompassing 50 large-cap companies listed on the National Stock Exchange. Over the years, it has maintained a low expense ratio and closely tracked the Nifty 50’s performance, thus providing investors a cost-effective way to gain exposure to the broad Indian equity market.

Types of Index Funds

  • Equity Index Funds
  • Bond Index Funds
  • Sector Index Funds
  • Commodity Index Funds
  • International Index Funds
  • Dividend Index Funds
  • Growth Index Funds
  • Value Index Funds
  • Small-Cap Index Funds
  1. Equity Index Funds: These funds mimic the performance of prominent equity market indices, providing investors with broad market exposure. They are a cost-effective way to invest in many stocks simultaneously, ensuring diversification in the equity market.
  1. Bond Index Funds: These are tailored to reflect the performance of specific bond market indices. They provide a lower-risk investment option with the potential for steady income, making them a suitable choice for conservative investors.
  1. Sector Index Funds: Targeting specific sectors, these funds allow investors to focus their investments in certain industries like technology or healthcare. They provide a way to capitalize on the potential growth of particular sectors.
  1. Commodity Index Funds: They track indices related to commodities like gold or oil, offering an opportunity for diversification outside traditional stocks and bonds. They can act as a hedge against inflation.
  1. International Index Funds: By mimicking foreign market indices, these funds provide exposure to global markets. They enable investors to diversify geographically and benefit from global economic growth.
  1. Dividend Index Funds: These funds focus on companies that pay high dividends, aiming to provide investors with regular income and capital appreciation.
  1. Growth Index Funds: Targeting growth-oriented companies, these funds seek capital appreciation. They invest in companies expected to grow at an above-average rate compared to others.
  1. Value Index Funds: Comprising of companies perceived as undervalued, these funds aim for price recovery. They seek to capitalize on the inherent value of these companies as they regain market recognition.
  1. Small-Cap Index Funds: They track indices of small-cap companies, offering high growth potential. However, they come with increased risk due to the volatile nature of small-cap stocks.

How To Invest In Index Funds In India?

Investing in index funds in India through a brokerage platform like Alice Blue is a streamlined process, outlined in a step-wise manner:

Step 1: Choose a Brokerage Platform

Select a reputable brokerage platform like Alice Blue that aligns with your financial goals and offers a range of index funds.

Step 2: Create an Account

Sign up and create an account on the chosen brokerage platform.

Step 3: Complete KYC Verification

Complete the mandatory KYC (Know Your Customer) verification for a secure and compliant financial interaction.

Step 4: Research and Select Index Funds

Utilize the tools the platform provides to research and identify index funds that align with your investment objectives.

Step 5: Invest in Index Funds

Once you’ve selected the index funds, follow the platform’s instructions to invest your funds.

Step 6: Monitor and Manage

Regularly monitor the performance of your index funds and make adjustments as necessary based on your financial goals and market conditions.

Best Index Funds In India

  • Nippon India Nifty SmallCap 250 Index Fund Direct-Growth
  • UTI Nifty Next 50 Index Fund Direct-Growth
  • HDFC Index Fund – Sensex Plan
  • Axis Nifty Next 50 Index Fund Direct-Growth
  • Motilal Oswal S&P BSE Low Volatility Index Fund Direct-Growth
  • SBI Nifty Index Fund

Here’s a table showcasing their 1-year return:

S No.Name of the Index Fund1 Year Return (%)
1Nippon India Nifty SmallCap 250 Index Fund Direct-Growth26.74
2DSP Nifty 50 Equal Weight Index Fund Direct-Growth 15.03
3HDFC Index Fund – Sensex Plan9.8
4Franklin India NSE Nifty 50 Index Direct Growth9.10
5Motilal Oswal S&P BSE Low Volatility Index Fund Direct-Growth17.32
6SBI Nifty Index Fund9.28

Note: The returns mentioned are indicative and may change based on market conditions. It’s advisable to check the latest returns and do thorough research before investing.

Do you want to expand your knowledge about mutual funds? We’ve got a list of must-read blogs that will help you do just that. Just click on the articles to find out more.

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Types Of Index Funds In India – Quick Summary

  • Index funds are a type of mutual fund with a portfolio constructed to match or track the components of a financial market index.
  • In India, several index funds exist, including Equity, Bond, Sector, Commodity, International, Dividend, Growth, Value, Small-Cap, and Mid-Cap Index Funds.
  • Investing in index funds in India is straightforward and can be done through a brokerage platform like Alice Blue.
  • Some of the best index funds in India include the UTI Nifty Next 50 Index Fund Direct-Growth, Axis Nifty Next 50 Index Fund Direct-Growth, and the Motilal Oswal S&P BSE Low Volatility Index Fund Direct-Growth, among others.
  • Invest in top index funds at no cost with Alice Blue. With their refer and earn program – you will get ₹ 500 for every referral and 20% of brokerage your friend pays for a lifetime – one of the highest in the industry.

Types of Index Funds – FAQs  

1. What is a common type of index fund?

Equity Index Funds are common among investors as they aim to replicate the performance of a prominent equity index like the NSE Nifty or SENSEX, providing broad market exposure.

2. How many index funds are there in India?

There are around 9 types of index fund available in india, which are as follows:

  1. Equity Index Funds
  2. Bond Index Funds
  3. Sector Index Funds
  4. Commodity Index Funds
  5. International Index Funds
  6. Dividend Index Funds
  7. Growth Index Funds
  8. Value Index Funds
  9. Small-Cap Index Funds

3. Are index funds safe?

Index funds are generally considered safer investments than individual stocks due to their diversified nature. They spread the investment across a broad market section, reducing the impact of poor performance by any single security.

4. Is S&P 500 an index fund?

S&P 500 is a stock market index, not an index fund; it measures the stock performance of 500 large companies listed on stock exchanges in the United States.

5. What is the 4% rule for index funds?

The 4% rule is a retirement planning guideline suggesting a safe withdrawal rate of 4% from one’s portfolio annually to ensure the savings last through retirement.

To gain a better understanding of the topic and access more information , explore the articles below that cover mutual funds, stock market insights, trading strategies, and organizational perspectives.

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