Best Index Funds in India

(Last Updated On: April 22, 2017)
Ever determined how Index gains or loose points. It all depends on the composition of Index. An index is a composition of stocks with large market capitalisation. Change in the price and weight age of the stocks included in the index moves the points. With the change in market capitalisation of stocks, weightage of stock in the index is determined. We look at the Best Index Funds in India in this post.
In the same way Index Funds are designed, in which portfolio of the fund is replicated of the tracking index with the same number and weight age of stocks. In India, Index funds are not so popular among investors due to its awareness and less return in short term than other equity funds.
An investment into Index Funds is ideally done for long term investing. These funds are less volatile and a good alternative for risk-averse investors in equity mutual funds.
Things to know before investing in Index Funds
  • Index funds are passively managed funds meaning, the fund manager has no role in the selection of stocks and its performance.
  • Index funds have low expense ratio than other equity funds. This is because of the limited role of manager and less transaction cost.
  • Index funds are diversified in nature. As the index represent companies of different sectors, index funds also replicate the same composition.
  • The main factor in index funds is Tracking error. Tracking error is variations in return against the index they track. It happens due to inflow/outflow of funds, corporate actions, change in index constituents. Lower tracking error implies better management of the fund.

Best Index Funds in India

  • UTI Nifty Index Fund
  • Franklin India Index Fund -NSE Nifty Plan
  • SBI Nifty Index Fund
  • ICICI Pru Nifty Index Fund
  • IDBI Nifty Index Fund
  • HDFC Index Fund- Nifty Plan
  • Reliance Index Fund – Nifty Plan
  • HDFC Index Fund – Sensex plan
Comparison Table **
Details of the Funds

UTI Nifty Index Fund

UTI nifty funds invest in securities of companies comprising of the Nifty 50 in the same weight age as they have in Nifty 50. The fund strives to minimise performance difference with Nifty 50 by keeping the tracking error to the minimum. The fund has been launched in March 2000, has well captured the rise of Nifty from 1400 level to now of 9200. The fund has given a annualised return 10.92% since inception.

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Franklin India Index Fund – NSE Nifty Plan

The fund’s objective is to invest in companies whose securities are included in the Nifty and subject to tracking errors, endeavouring to attain results commensurate with Nifty 50 Index under NSE Nifty Plan, and to provide returns that, before expenses, closely correspond to the total return of common stocks as represented by the S&P BSE Sensex under S&P BSE Sensex Plan.

The investment in the fund is a moderately high risk. The fund return since inception is 12.65% and the expense ratio is relatively high than other funds at 1.06%.

SBI Nifty Index Fund

The fund invests in all the stocks comprising Nifty 50 Index in the same proportion as their weight age in the index. The fund launched in Feb 2002 has given a return of 14.51% since inception. The fund has been able to keep the fund’s tracking error low. It is moderately high-risk fund.

ICICI Prudential Nifty Index Fund

The scheme aims to closely track the performance of Nifty 50 Index by investing in almost all the stocks and in approximately the same weight age that they represent in the index. The fund is suitable for long-term wealth creation by replicating the S&P CNX Nifty index.  The fund has been launched in Feb 2002 and has given 15.51% of return since then.

IDBI Nifty Index Fund

The fund’s objective is to invest in the stocks comprising the Nifty 50 Index in the same weights as these stocks represented in the index with the intent to replicate the performance of the Total Returns Index of S&P CNX Nifty. The fund is relatively new, launched in June 2015. The fund’s tracking error is marginally high and has underperformed the index. The alpha of the fund is negative 0.50 which implies the underperformance of fund. Since inception, the fund’s return is 8.92%.

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HDFC Index Fund – Nifty Plan

The scheme aims to generate returns that are commensurate with the performance of Nifty 50, subject to tracking errors. The fund offers only Growth option for investment in the fund. The annualized return of the fund since inception (July 2002) is impressive at 15.36%.

Reliance Index Fund – Nifty Plan

The objective of the scheme is to replicate the composition of the NIFTY, with a view to generate returns that are commensurate with the performance of the NIFTY, subject to tracking errors. The fund is consistent with a return since inception and has given 19.95%, 10.96%, 12.38% of return over 1yr, 3yr and 5yr respectively.

HDFC Index Fund – Sensex Plan

The objective of the scheme is to generate returns that are commensurate with the performance of S&P BSE Sensex, subject to tracking errors. The fund has AUM of Rs. 105 crore and was launched in July 2002, has given a annualized return of 15.14% since inception.

List of funds is arrived after comparing different funds from the same category. Only those funds are selected which have less tracking error and has performed consistently.

Conclusion

Investing in index funds are ideally best for the long term period of more than 5 years. We can compare from the table itself, the returns of funds since inception which are more than 10 years have successfully given double digit return to investors and is par to returns of many actively managed equity funds. Its low cost, easy to track fund design is the unique feature of this fund. Due to less awareness among the public regarding Index Funds, the asset size remains small in most of the fund.

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Charts: ValueResearch

Disclaimers:

-This blog post should not be constituted as an advice and investors are requested to do their own due diligence before investing into any of the above-mentioned funds. You can also try out Bodhik to get the funds best suited to your profile

** – All the numbers are as of writing of this post i.e 11th April 2017.

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