Index Fund Corner
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| Scheme Name | 1-Year Return | Invest Now | Fund Category | Expense Ratio |
|---|---|---|---|---|
| Axis Nifty 50 Index Fund | +32.80% | Invest Now | Equity: Large Cap | 0.12% |
| Axis Nifty 100 Index Fund | +38.59% | Invest Now | Equity: Large Cap | 0.21% |
| Axis Nifty Next 50 Index Fund | +71.83% | Invest Now | Equity: Large Cap | 0.25% |
| Axis Nifty 500 Index Fund | — | Invest Now | Equity: Flexi Cap | 0.10% |
| Axis Nifty Midcap 50 Index Fund | +46.03% | Invest Now | Equity: Mid Cap | 0.28% |
Domestic equity index funds, for example, led the inflows with ₹4,543 crore in December 2024.
Here are key factors driving the momentum in this space:
Lower expense ratios
One of the primary drivers is the significantly lower expense ratios offered by index funds and ETFs compared to active funds.
Gaurav Doshi, Senior Executive Vice President and Principal Officer at 360 ONE Wealth, explains, “These funds typically have expense ratios that are a third or less than those of active funds, which makes them more attractive to cost-conscious investors.”
The ability to invest with lower management fees is a major advantage for both retail and institutional investors.
Increased awareness of active management challenges
Another factor pushing the growth of index funds and ETFs is the growing awareness of the difficulties active managers face in consistently outperforming the market.
“Investors are becoming more aware of the challenges in active management, where very few managers can outperform the market consistently over the long term,” Doshi says.
Improved accessibility through digital platforms
The rise of digital platforms has made it easier for investors to access index funds and ETFs.
According to Doshi, “The ease of investing through online platforms has opened up these products to a wider audience.”
As more investors move toward digital tools for investing, the growth of index funds and ETFs is gaining momentum, especially among retail investors.
Institutional confidence from EPFO
The success of the Employees’ Provident Fund Organisation (EPFO) in using ETFs has helped build institutional confidence.
“The EPFO invests about 15% of its incremental flows into equity ETFs, creating a solid demand base,” Doshi notes.
This institutional involvement has set a positive precedent for other large investors and has fuelled confidence in these investment products.
Retail participation on the rise
While institutional investors lead the way, retail participation is also increasing.
“Retail participation is growing steadily due to improved financial literacy and the availability of online platforms,” Doshi points out.
As more investors understand the benefits of ETFs and index funds, the retail segment is becoming an important driver of growth.
Efficient diversification
ETFs provide investors with a cost-effective way to diversify their portfolios.
Doshi explains, “ETFs offer efficient diversification, especially in sectors where active fund options are limited. For example, an IT sector ETF gives you exposure to the entire IT sector at a lower cost than actively managed funds.”
The ability to achieve broad market exposure with a single instrument is appealing, particularly for investors looking for efficient portfolio management.
Tactical allocation advantage
Another benefit of ETFs is their ability to offer tactical allocation.
“ETFs allow precise positioning and adjustments during market hours, giving them an edge over traditional mutual funds for tactical allocation,” says Doshi.
This flexibility enables investors to take advantage of market conditions in real time, making ETFs an attractive option for more hands-on investors.
Sectoral and broad market focus
Among the most popular ETFs in India are those tracking the broad market indices like Nifty 50 and Sensex.
“We’re also seeing increasing interest in sectoral ETFs, such as those focused on banking and IT, along with new-age technology indices and momentum-based funds,” Doshi notes.
Investors are also expanding their horizons to include broader market ETFs like Nifty Next 50 and Nifty Midcap 150.
Challenges of liquidity and misconceptions
Despite the benefits, there are still challenges to address.
“Liquidity remains a major issue for many ETFs, except for those like Nifty 50 ETFs, that have higher trading volumes,” Doshi admits.
Lower trading volumes can result in higher impact costs, which investors need to be aware of.
He also points out that there is a misconception that ETFs are only suitable for sophisticated investors due to concerns about trading volumes and tracking errors.
India’s lag in adoption compared to global trends
Doshi acknowledges that while India is catching up, it still lags behind global markets in ETF adoption.
“The US has nearly 50% of equity assets in passive investments, while in India, ETF adoption is still in the early stages,” he says.
However, the Indian ETF market has seen significant growth, expanding by over 30% annually, signalling that India is beginning to align with global trends toward passive investing.
A look at some of the existing index funds and ETFs in the market
| Scheme Name | Benchmark | Latest NAV (₹) | Daily AUM (Cr.) |
| 360 ONE ELSS Tax Saver | Nifty 50 Total Return Index | 12.8424 (Regular), 12.9083 (Direct) | 74.47 |
| Aditya Birla Sun Life BSE Sensex ETF | BSE Sensex Total Return Index | 75.4763 | 317.29 |
| Aditya Birla Sun Life CRISIL IBX 50:50 Gilt Plus SDL Apr 2028 Index Fund | CRISIL IBX 50:50 Gilt Plus SDL Index – April 2028 | 11.8924 (Regular), 11.9341 (Direct) | 409.78 |
| Aditya Birla Sun Life CRISIL IBX 60:40 SDL+ AAA PSU Apr 2026 Index Fund | CRISIL IBX 60:40 SDL + AAA PSU Index – April 2026 | 11.5247 (Regular), 11.5842 (Direct) | 53.01 |
| Aditya Birla Sun Life CRISIL IBX 60:40 SDL+ AAA PSU-Apr 2025 Index Fund | CRISIL IBX 60:40 SDL + AAA PSU Index – April 2025 | 11.6502 (Regular), 11.6976 (Direct) | 169.29 |
| Aditya Birla Sun Life CRISIL IBX 60:40 SDL+AAA PSU-Apr 2027 Index Fund | CRISIL IBX 60:40 SDL + AAA PSU Index – April 2027 | 11.6792 (Regular), 11.7436 (Direct) | 1,676.82 |
| Aditya Birla Sun Life CRISIL IBX Gilt -Apr 2029 Index Fund | CRISIL IBX Gilt Index – April 2029 | 11.9408 (Regular), 11.9839 (Direct) | 694.23 |
| Aditya Birla Sun Life CRISIL IBX Gilt Apr 2028 Index Fund | CRISIL IBX Gilt Index – April 2028 | 11.3371 (Regular), 11.3952 (Direct) | 29.28 |
| Aditya Birla Sun Life CRISIL IBX Gilt April 2033 Index Fund | CRISIL IBX Gilt Index – April 2033 | 10.9232 (Regular), 10.9526 (Direct) | 97.03 |
| Aditya Birla Sun Life CRISIL IBX Gilt-April 2026 Index Fund | CRISIL IBX Gilt Index – April 2026 | 11.7386 (Regular), 11.7813 (Direct) | 290.22 |
(Source: AMFI)
