Top 10 Index Funds For 2024

A special type of mutual fund called an index fund is meant to mimic the performance of a specific market index. With a passive investment approach, these funds seek to closely resemble index returns. They accomplish this goal by either owning every security in the index or a representative sample, providing investors with cost-effective investing options, diversification advantages, and wide market exposure. The indexes represent a collection of the top companies listed on the Indian stock market. So, when you invest in an index fund, you are purchasing a tiny percentage of all the companies in that index.

 

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Index funds have become a popular channel of investment these days. As reported by Business Standard, a survey by Motilal Oswal Asset Management Company indicates that index funds have gained popularity among Gen Z and Millennials (46-48% of investors under 43 support them), compared to 35% of Gen X and Boomers.

 

 

The rising popularity of the index funds is due to their cost efficiency and lower expense ratios, obtained by tracking market indices passively. They provide consistent market-equivalent returns and instant diversification across sectors, and make them attractive to both new and seasoned investors. The simplicity and transparency, coupled with the ease of investing via varied digital platforms and automated tools like Systematic Investment Plans (SIPs), have further boosted Index funds’ appeal. You must also know that increased financial awareness and global trends favoring passive investments have also contributed to index funds’ rise. However, these funds may underperform during volatile markets compared to active funds. Overall, index funds are increasingly seen as a reliable, low-cost option for long-term investing.

 

Let us know a few top-performing index funds over the past year. These funds have primarily tracked the Nifty Next 50 Index, reflecting strong growth among large-cap companies. Among these, the Bandhan Nifty IT Index Growth Direct Plan has led with a 42.78% return over the past one year, while Edelweiss Nifty Next 50 Index Growth Direct Plan offered a competitive 42.66% return with the lowest Total Expense Ratio (TER) of just 0.09%. Other prominent performers, such as funds from UTI, SBI, Kotak, ICICI Prudential, DSP, and Axis Mutual Funds, delivered returns in the range of 42.36% to 42.59% with TERs varying from 0.11% to 0.37% respectively (as shown in the Table 1). These funds highlight the growing popularity of passive investing, combining low-cost structures with market-linked performance, making them attractive to long-term investors seeking consistent returns.

Top 10 Index Funds with 1 year return for 2024

 

S. No.	Name of the Fund	1 Yr return	TER (%)	Fund House
1	Bandhan Nifty IT Index Growth Direct Plan	42.78	0.37	Bandhan Mutual Fund
2	Edelweiss Nifty Next 50 Index Growth Direct Plan	42.66	0.09	Edelweiss Mutual Fund
3	UTI Nifty Next 50 Index Growth Direct Plan	42.59	0.36	UTI Mutual Fund
4	SBI Nifty Next 50 Index Growth Direct Plan	42.58	0.33	SBI Mutual Fund
5	Aditya Birla Sun Life Nifty Next 50 Index Growth Direct Plan	42.58	0.33	Aditya Birla Capital Mutual Fund
6	Kotak Nifty Next 50 Index Growth Direct Plan	42.57	0.11	Kotak Mahindra Mutual Fund
7	ICICI Prudential Nifty Next 50 Index Growth Direct Plan	42.56	0.31	ICICI Prudential Mutual Fund
8	DSP Nifty Next 50 Index Growth Direct Plan	42.54	0.28	DSP Mutual Fund
9	Motilal Oswal Nifty Next 50 Index Growth Direct Plan	42.50	0.35	Motilal Oswal Mutual Fund
10	Axis Nifty Next 50 Index Growth Direct Plan	42.36	0.25	Axis Mutual Fund

Source: Kuvera, as on 15/12/2024.

 

The Benefits of Index Funds in India

 

Describing the benefits of Index funds in India, we know that they provide a low-cost, diversified, and transparent investment option by passively tracking the market indices like the Nifty 50 and Nifty Next 50. With low expense ratios—for example, Edelweiss Nifty Next 50 Index Fund’s TER of 0.09%—they are cost-efficient compared to actively managed funds. They offer broad market exposure, reducing risk through diversification, and deliver consistent returns by mirroring index performance. Platforms like Kuvera have simplified access to index funds, enabling investors to automate investments through SIPs and start with minimal amounts. Backed by SEBI’s regulations, index funds are ideal for long-term wealth accumulation, such as retirement planning or financial goals. The benefits of index funds are shown in the following diagram:

 

 

Things You Should be Careful About Investing in Index Funds

 

Even though the index funds have various benefits, then too while investing in index funds you must take precautions to ensure they align with your financial goals and risk tolerance. The precautionary key considerations are:

 

1. Understanding the Index Being Tracked

As different index funds track various indices, such as Nifty 50, Nifty Next 50, or sector-specific indices like Nifty IT, you should choose an index fund based on your risk appetite and desired market exposure. For instance, Sectoral indices, like IT or banking, may be riskier due to their lack of diversification, if you have a risk aversion appetite.

 

2. Compare the Total Expense Ratio

While index funds are generally low-cost, the Total Expense Ratio (TER) varies across funds. Even a small difference can impact your long-term returns, so opt for funds with lower TERs. For example: Edelweiss Nifty Next 50 Index Fund has a TER of 0.09%, making it more cost-efficient among its competitors.

 

3. Tracking Error

Additionally, you should be aware that a fund’s tracking error indicates how closely it mimics its benchmark index. Poor performance in comparison to the index is indicated by a higher tracking error. For greater alignment with market returns, you must select funds with a low tracking error.

 

4. Market Risks

Index funds mirror market performance and are subject to market volatility. They may not protect you against downturns because unlike active funds, index funds do not aim to outperform the market. Therefore, as an investor, you must be prepared for fluctuations during market corrections.

 

5. Long-Term Investment Horizon

Index funds work best for long-term goals due to their ability to generate steady returns over time. If you are a short-term investor, seeking quick gains, then you might find market-linked volatility challenging.

 

6. Assess Fund House Reputation

You should choose funds from established Asset Management Companies (AMCs) with a solid track record and strong management to ensure efficient fund replication and minimal tracking errors.

 

7. Avoid Overlapping Investments

Investing in multiple index funds that track the same index (e.g., Nifty 50) can lead to redundancy without improving diversification. Hence, you should opt for funds tracking different indices if needed.

 

8. Tax Implications

Gains from index funds are subject to capital gains tax as prescribed by the regulatory authorities from time-to-time.

 

9. Review Periodically

While index funds are passive, periodic reviews of performance, expense ratios, and tracking errors ensure they remain aligned with your goals. 

 

 

Wrapping Up

 

Index funds can be a better option for investors seeking low-cost, diversified, and transparent investment options. By tracking market indices like the Nifty 50, they offer consistent, long-term returns with minimal management fees. However, one must be cautious of factors such as expense ratios, tracking errors, market risks, and the need for a long-term investment horizon. Platforms like Kuvera make investing in index funds accessible and straightforward.

 

As John Bogle, the creator of the first index fund, wisely said, “the beauty of index funds is that they give you the broadest possible exposure to the market, while keeping costs low and management simple. In essence, they make investing accessible and efficient for everyone.”

 

 

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