Index funds for investors with low-risk appetite

Index funds track broad-based indices thus reducing the impact of the decline in value of any one stock or industry or sector. Many prefer index funds over ETFs to avoid the hassles of maintaining a demat account and poor liquidity.

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Investors looking to build a mutual fund portfolio without a fund manager bias could consider index funds. Growing worries about the ability of fund managers to generate outperformance are prompting investors to increasingly consider passively-managed funds, such as index- and exchange-traded products. Such concerns are higher in large-cap funds.

A big advantage of index funds is their lower costs. Investors can save anywhere between 0.5% and 1.5% every year in an index fund compared to an actively-managed fund. The cost savings are significant over a long period of investment.

  • 1.73%Annualized Return for 1 year
  • >3 years Suggested Investment Horizon
  • N.ATime taken to double money
  • 22.52%Annualized Return for 1 year
  • >3 years Suggested Investment Horizon
  • N.ATime taken to double money
Index funds track broad-based indices thus reducing the impact of the decline in value of any one stock or industry or sector. Many prefer index funds over ETFs to avoid the hassles of maintaining a demat account and poor liquidity.


Index funds replicate the indices, with marginal tracking error. Since there is no active fund management involved, costs are low and are passed on to the investor in the form of lower expense ratio. Here are some index funds that wealth advisors have been recommending to clients:

ICICI Prudential Nifty Index Fund
Expense Ratio: 0.10%
Assets Under Management: Rs 436 crore
Top 5 holdings: HDFC Bank, Reliance, HDFC, Infosys, ICICI Bank
1 year/3 year return (%): 15.82/12.83

Many financial planners recommend a plain vanilla Nifty fund for first-time investors. The Nifty 50 is made up of the top 50 stocks in the Indian market, filtered by their free float market capitalisation, liquidity and other parameters. The Nifty has a high 39.39% exposure to financials. It works well for investors wanting market exposure at relatively cheaper cost and looking to eliminate fund manager bias. Investors with a time horizon of five years and above can use the SIP route for exposure to this fund. The fund scores by the virtue of having the lowest expense ratio in the Nifty 50 universe of funds.
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Motilal Oswal Nifty Midcap 150 Index Fund
Expense ratio: 0.38%
Assets under management: Rs 18 crore
Top 5 holdings: Federal Bank, City Union Bank, Voltas, Info Edge, RBL Bank
1 year/3 year returns (%): NA

A recently launched index fund in the mid cap space, it does not have a track record of performance. Fund houses have hesitated to launch mid cap index funds due to poor liquidity. With many mid cap funds, underperforming in the last couple of years, analysts believe this could be worth a try for investors who want an exposure to mid cap funds in their portfolio but do not believe in fund manager skills for the alpha generation.

Motilal Oswal Nasdaq 100 FOF
Expense ratio: 0.10 %
Assets under management: Rs 8 8 crore
Top 5 holdings: Micro Soft corp, Apple, Amazon.com, Facebook, Alphabet C Class
1 year/3 year returns (%): 11.37/20.07
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A fund meant for high-risk takers, the portfolio primarily consists of top US-based technology giants listed on the NASDAQ. Financial planners believe an investment in such a fund makes sense as it is difficult to replicate these set of companies in India.

UTI Nifty Next 50
Expense ratio: 0.27 %
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Assets under management: Rs 487 crore
Top 5 holdings: SBI Life, HDFC Life, Godrej Consumer, Dabur, Shree Cement
1 year/3 year returns (%): 8.4/NA
Analysts believe the Nifty Next 50 is a well diversified portfolio of 50 companies with better sector diversification as compared to the Nifty 50. Four listed insurance companies find a place in this index. The top 10 stocks of Nifty Next 50 comprise 59.67% of the Nifty 50 portfolio. Analysts believe this is a must have in the portfolio due to higher diversification, lesser cyclical stocks compared to other large-cap indices. This increases the prospects of more consistent returns despite periods of market volatility. Without excessive weight to banks, the portfolio has more diversified holding.
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