Biggest Index Funds in India

Why Index Funds?

Index funds are mutual funds or exchange-traded funds (ETFs) designed to replicate the performance of a specific index. In India, the most popular indices include the Nifty 50 and the Sensex—both of which track the largest companies listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE), respectively. When you invest in an index fund, you are essentially investing in all the companies that make up that index, which means that you don't have to pick and choose individual stocks. This not only saves time and effort but also reduces the risk of making bad stock picks.

What makes Indian index funds particularly interesting is their low cost. Since these funds are passively managed (meaning there isn’t a fund manager constantly trading in and out of stocks), they generally have lower expense ratios compared to actively managed mutual funds. Lower costs mean more of your returns stay in your pocket, which is critical for long-term wealth accumulation.

How Do You Measure the “Biggest” Index Funds?

The size of an index fund can be evaluated using different criteria, including:

• Assets Under Management (AUM): This is the total market value of the assets a fund manages. The larger the AUM, the more confidence investors have in the fund.
• Tracking Error: This measures how closely the fund follows its benchmark index. Lower tracking error is better because it means the fund mirrors the index performance more accurately.
• Expense Ratio: While not directly related to size, a lower expense ratio often attracts more investors, growing the fund's AUM.
• Liquidity: More liquidity means it’s easier for investors to buy and sell shares without affecting the price too much.

Biggest Index Funds in India

1. SBI Nifty Index Fund

The SBI Nifty Index Fund is one of the biggest index funds in India, with AUM exceeding ₹11,000 crore. This fund aims to replicate the Nifty 50 index as closely as possible. It offers investors exposure to blue-chip stocks across various sectors, including financial services, information technology, and energy.

• Expense Ratio: 0.21%
• Tracking Error: Low
• AUM: ₹11,000 crore+

This fund is popular among retail and institutional investors due to its low cost and excellent tracking accuracy. The fund's composition ensures broad-based participation in India's economic growth.

2. HDFC Index Fund - Nifty 50 Plan

HDFC is a household name in Indian finance, and its Nifty 50 index fund doesn't disappoint. With over ₹8,500 crore in AUM, this fund is ideal for investors looking for a simple and efficient way to invest in India's top 50 companies.

• Expense Ratio: 0.20%
• Tracking Error: Very Low
• AUM: ₹8,500 crore+

HDFC's fund also benefits from lower tracking error, meaning investors can be sure that the fund closely mirrors the index, giving them near-exact exposure to the broader market.

3. ICICI Prudential Nifty Index Fund

ICICI Prudential offers a robust Nifty Index Fund with an AUM of over ₹7,000 crore. The fund follows a passive investment strategy, investing in all the stocks of the Nifty 50 index.

• Expense Ratio: 0.25%
• Tracking Error: Moderate
• AUM: ₹7,000 crore+

While its expense ratio is slightly higher than others, the fund has shown consistent growth and offers liquidity that ensures efficient buy-and-sell transactions.

4. UTI Nifty Index Fund

The UTI Nifty Index Fund offers exposure to the top 50 stocks in the Nifty 50 index. With an AUM of ₹6,000 crore+, UTI's offering stands out due to its long track record of delivering returns closely aligned with the benchmark.

• Expense Ratio: 0.22%
• Tracking Error: Low
• AUM: ₹6,000 crore+

5. IDFC Nifty Fund

The IDFC Nifty Fund is another major player in the Indian index fund market. Its AUM of ₹5,000 crore+ makes it a popular choice for investors looking to passively track the Nifty 50 index.

• Expense Ratio: 0.30%
• Tracking Error: Moderate
• AUM: ₹5,000 crore+

Growth of Index Funds in India

Over the past decade, index funds have gained immense popularity in India. Factors contributing to this growth include:

• Increased financial literacy: More investors are now aware of the benefits of passive investing.
• Regulatory push: The Securities and Exchange Board of India (SEBI) has encouraged fund houses to offer more cost-effective, transparent investment vehicles.
• Global Trends: Globally, passive investing has been on the rise, with investors looking to minimize costs and beat inflation.

According to a 2023 report by Morningstar, the Indian index fund market has grown by over 50% in the past five years, with total AUM crossing ₹1 trillion. The report also pointed out that younger investors, in particular, are driving this growth, with millennials showing a clear preference for passive funds over traditional mutual funds.

The Future of Index Funds in India

India’s economic growth trajectory, coupled with its burgeoning middle class, presents a promising future for index funds. The government’s push towards a $5 trillion economy by 2025 could see even higher returns for investors in broad-market index funds. Moreover, with SEBI’s continued focus on lowering costs for investors, index funds are likely to become even more attractive in the coming years.

Another factor driving the future growth of index funds in India is the rise of Environmental, Social, and Governance (ESG) investing. Many fund houses are now offering ESG-focused index funds, allowing investors to put their money in companies that are socially responsible, environmentally conscious, and well-governed.

Comparing Index Funds and ETFs in India

While index funds and ETFs (Exchange-Traded Funds) both aim to replicate the performance of an underlying index, they are not identical. ETFs trade on exchanges like stocks, meaning they offer greater liquidity and flexibility in trading, but they also require a demat account. Index funds, on the other hand, are easier to invest in for retail investors without a demat account, as they can be bought and sold like any other mutual fund.

Both investment vehicles have their own set of advantages. For long-term investors, index funds are often preferred for their simplicity and ease of investment. ETFs, however, are more suitable for active traders who want more control over when they buy and sell.

Table of Major Index Funds in India (Based on AUM and Expense Ratios)

Note: Data as of 2024.

Key Takeaways

• Index funds provide a simple, low-cost way to gain exposure to India’s top companies.
• They are a great option for long-term wealth creation, thanks to their low expense ratios and reduced risk.
• The biggest index funds in India include offerings from SBI, HDFC, ICICI, UTI, and IDFC.
• The market for index funds is growing rapidly, with younger investors driving much of this growth.

If you're looking for a hands-off way to invest in India's growth story, index funds are undoubtedly one of the best options. Whether you're a novice investor or someone with years of experience, these funds offer a perfect mix of simplicity, diversification, and low costs.