Best Index Funds To Invest In India 2026 : Low-Cost Diversified Mutual Funds
Often, investors with a low risk tolerance are attracted to an investment tool designed to track the performance of a market index. Yes, we are talking about index funds. Index funds are popular amongst investors who begin investing in mutual funds and seek convenient, low-cost, and simple diversified funds.
Initially, index fund investing constituted only a handful of choices. Today, the Indian market offers a much wider and expanding range. With this variety, its popularity has been steadily increasing. In just a year, the Net Assets Under Management (AUM) of index funds in India went from INR 2.63 Lakh Crores in August 2024 to INR 3.04 Lakh Crores in August 2025 - a jump of 15.58%1.
In this blog, we dive into what index funds are, how they track markets, and the top index funds in India.
What Are Index Funds And How They Track Markets
Index funds are a type of passive mutual fund that are constructed to track and follow the performance of a market index. These funds invest in the same manner as the index that they choose to replicate. For instance, an index fund tracking the Nifty50 will invest in the exact securities and an identical proportion as the Nifty50 index. This is followed to achieve the exact returns generated by the market index, subject to errors.
Through an index fund, an investor gains diversification through a low-cost and low-risk investment tool. These funds are passively managed, without any significant fund manager expertise. Therefore, they have a lower expense ratio and associated costs. This makes them suitable options to consider among the low-cost mutual funds. Let’s understand how these index funds work.
Upon choosing an index to replicate, fund managers do not have to examine stocks, but rather rely on the stocks within the index.
Funds rely on different market tracking mechanisms to replicate the index.
1. A full replication method involves following the index exactly. This means the fund buys all the securities in the same division as the index. It is ideal for an index that holds a reasonable number of stocks.
For example, Nifty50 holds the top 50 stocks based on market capitalisation in India. Indices tracking the Nifty50 could follow the full replication method and invest in the same manner.
2. A partial replication method involves tracking the performance of a set of stocks that are most associated with the performance of the index. This method is suitable for index funds that track a broad index with a high number of securities.
For example, an index fund tracking the Nifty 500 could track a combination of stocks that are more closely aligned with the index’s performance, rather than investing in all 500 stocks.
Popular Index Funds In India
Index funds are a simple and cost-effective way to invest in the stock market by tracking major market indices like Nifty 50 or Sensex. Instead of picking individual stocks, these funds mirror the performance of an entire index, offering diversification, lower costs, and steady long-term growth.
Here, we explore five of the most popular index funds in India, ranked by their assets under management (AUM), helping you identify tried-and-tested options for your portfolio.
| Index fund | AUM (INR Crores) | 5-year returns (%) | 3-year returns (%) |
| UTI Nifty50 Index Fund | 23,718 | 17.99% | 14.85% |
| UTI Nifty200 Momentum 30 Index Fund | 8,131 | - | 17.23% |
| ICICI Prudential Nifty Next 50 Index Fund | 7,649 | 20.52% | 18.46% |
| UTI Nifty Next 50 Index Fund | 5,481 | 20.13% | 18.08% |
| Motilal Oswal S&P 500 Index Fund | 3,886 | 19.66% | 27.10% |
* Returns and AUM as on 3rd October, 2025, Source: Moneycontrol2
Disclaimer: The historical performance of an index fund does not guarantee future returns and is only one way to evaluate its past performance. Investors should carefully review all offer-related documents before selecting any fund. The top 5 index funds listed here are based on the criteria mentioned above; however, individual rankings may vary if criteria are adjusted.
Risk Mitigation: Complementing Index Funds With Bonds
Index funds are known for their risk mitigation and low-cost structure benefits. Index funds are low-risk mutual funds, as compared to active funds that bring a higher risk. However, their risk level is more than that of fixed-income investment tools such as bonds.
Therefore, combining index funds with fixed-income investment tools like bonds provides investors with a balanced portfolio. While index funds provide a broad market equity exposure, bonds like corporate bonds, government bonds, etc, provide stability and a predictable income stream.
Complementing each other, index funds and bonds can be used to achieve a balance in risk and reward for an investor. Let’s break down how.
- Balance between risk and return: Fixed income bonds provide stable, predictable returns, thereby reducing risk. On the other hand, equity index funds offer higher returns to investors at a higher risk level. This combination leads to a suitably balanced risk-reward portfolio.
- Offsetting volatility: In volatile markets, equity funds tend to underperform. However, bonds are likely to shield the investor’s portfolio from volatility. This preserves the investor’s returns.
- Strengthening overall portfolio performance: Bonds provide investors with a regular stream of income. This regular income can be reinvested in index funds to provide long-term discipline and investment opportunities.
If you are already invested in equity index funds and seek further diversification through fixed-income bonds, check out the latest products by Grip Invest. It has different bonds that are suitable for a long-term investor.
Conclusion
Passive investing in India is gaining popularity, as evidenced by its growing investor base. Index funds are at the core of this growth journey. Investors are increasingly willing to invest in securities that automate their investments.
Combining investment tools such as index funds and bonds will provide investors with a suitable balance between risk and return. A regular income stream, combined with the opportunity to invest in equity index funds, provides investors with a lucrative investment plan.
Progress your investment with a combination of best index funds, such as Nifty 50 funds or Sensex index funds, and bonds by Grip Invest for an ideal risk-reward portfolio.
FAQs On Best Index Funds In India
1. How do index funds work compared to actively managed funds?
Index funds passively track a market index by replicating its portfolio, typically using full or partial replication methods. They generally have lower expense ratios than actively managed funds and aim to match market returns, not beat them.
2. Should I invest in index funds or bonds for a balanced portfolio?
Combining index funds with bonds is a prudent strategy to balance risk and return. While index funds provide equity market exposure, bonds offer stability and predictable income, reducing overall portfolio volatility.
3. What is the minimum investment required for index funds in India?
Minimum investments vary, but many index funds allow initial investments as low as INR 5,000 or through monthly SIPs of INR 1,000, making them accessible for investors across different budgets.
References:
1. AMFI India, accessed from: https://portal.amfiindia.com/spages/amaug2024repo.pdf
2. Money Control, accessed from: https://www.moneycontrol.com/mutual-funds/performance-tracker/returns/index-fundsetfs.html
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