Top 5 Index Funds in India 2025 to Maximize Returns

Top 5 Performing Index Funds in India for 2025

Index funds are a good way to expose your portfolio to multiple stocks across sectors and industries. These funds replicate the performance of benchmark indices like the Nifty 50 or Sensex by investing in their stocks in the same weightage and proportion. By choosing the best index funds in India, you can benefit from cost-efficiency and consistent returns while minimising the need for active fund management.

To help you choose the best index funds for long-term investment, the expert research team at Samco Securities has created a list of the top-performing funds. These funds are carefully selected based on their fundamentals, such as historical returns, expense ratios, NAV and asset under management (AUM).

• UTI Nifty Index Fund

One of the best index funds in India, the UTI Nifty Index Fund has consistently delivered robust returns. The fund’s 5-year return is 15.46% (CAGR) and its long-term return since inception is 13.08% as of January 7, 2025. 

The fund’s diversified exposure to the Nifty 50 companies and a low expense ratio of just 0.17% ensures stability and growth potential, making it an excellent choice for those seeking the best index funds for long-term investment.

• HDFC Index Fund - Nifty50 Plan

The HDFC Index Fund - Nifty50 Plan stands out among the list of the best index funds in India with its impressive 5-year return of 15.38% (CAGR) and consistent long-term performance of 13.20% since inception as of January 7, 2025. 

The HDFC Index Fund - Nifty50 Plan is ideal for investors seeking steady returns and exposure to blue-chip companies in India’s equity market. The low expense ratio of 0.20% positions the fund as one of the best index funds to invest in India. 

• ICICI Pru Nifty Index Fund

The ICICI Pru Nifty Index Fund is a preferred choice among the list of best index funds in India. The fund’s 5-year return is 15.44% (CAGR) and its return since inception is 13.15% as of January 7, 2025. 

Its low expense ratio of 0.18% ensures cost efficiency, appealing to investors looking for economical investment options. For those seeking exposure to the Nifty 50 index, this fund offers a promising avenue for the best index funds for long-term investment.

• Nippon India Index - Sensex

The Nippon India Index - Sensex provides investors with exposure to the Sensex, India’s benchmark index of top-performing companies. With a 5-year return of 14.96% (CAGR) and a long-term return of 13.10% since inception as of January 7, 2025, it is a solid choice among the list of best index funds in India for long-term investors.

Its NAV of Rs. 41.85 as of January 7, 2025, caters to both small and large investors, positioning it as one of the best index funds to invest in India for a diversified and growth-oriented portfolio.

• ICICI Prudential Sensex Fund

Another one of the best index funds for long-term investment is the ICICI Prudential Sensex Fund. Tracking the performance of Sensex, the fund generated a 5-year CAGR return of 14.97% and an impressive return since inception of 13.80% as of January 7, 2025. 

The low expense ratio of 0.19% ensures that the Sensex-based fund combines affordability and strong performance. For those seeking the best index funds in India, the ICICI Prudential Sensex Fund is an attractive option that can be considered. 

A Detailed List of the Best Nifty 50 Index Funds for 2025

A Detailed List of the 5 Best Sensex Index Funds for 2025

What are Index Funds? 

Index funds are mutual funds that track different market indices. Their composition closely mirrors the composition of the chosen benchmark index they are tracking. They may track broad market indices like the Nifty 50 or the BSE Sensex, or sectoral indices that represent the performance of different market sectors. 

The best index funds in India not only track their benchmarks closely but also have low expense ratios. This makes them highly cost-effective for investors and ensures that the investment costs do not significantly erode the potential net gains from the index fund. That said, index funds typically cost less to manage than active funds. Their passive investment strategy makes them suitable for investors operating on a tight budget. 

Depending on the type of index being tracked, you can choose from different fund options like the best broad market index funds, the best sectoral funds and even the best mid-cap index funds in India.

Are Profits from Index Funds Taxable?

Yes, profits from index funds that track equity indices are taxable in India as per the Income Tax Act, 1961. The taxation depends on the holding period. These index funds, which are benchmarked against equity indices, invest at least 65% of their total assets in equity and equity-related instruments. 

As per the new tax rules effective July 23, 2024, if you sell your equity index fund units within 12 months, you'll be subject to short-term capital gains (STCG) tax at 20%. This is a significant increase from the previous rate of 15%. 

For investments held longer than 12 months, long-term capital gains (LTCG) tax is applicable at 12.5% (increased from 10%). However, there's a beneficial provision where LTCG up to Rs 1.25 lakh per financial year remains tax-free, which can be particularly advantageous for long-term index fund investors.

What are Expense Ratios in Index Funds?

Expense ratios in index funds are the annual fees that fund houses charge to manage and operate the fund. These costs include management fees, administrative expenses and other operational costs. The ratio is typically expressed as a percentage of the fund's assets. When you compare the best index funds in India, it is important to choose funds with lower expense ratios because the costs can directly impact your net returns over time.

Low expense ratios play a key role if you are building a portfolio of the best index funds for long-term investment. Over time, even a small percentage difference can compound significantly and affect the process of creating wealth. To identify funds that balance low costs with consistent performance and provide optimal returns for long-term investors, ensure you review the list of best index funds in India.

If you are planning to invest in specific segments like the best mid-cap index funds in India, expense ratios are particularly significant. Mid-cap funds can have slightly higher operating costs than large-cap funds because tracking the prices of mid-sized companies requires active management. Opting for funds with competitive expense ratios ensures that you maximise returns while gaining exposure to mid-cap growth opportunities.

What are the Risks Involved in Index Fund Investments? 

Even the best index funds in India carry some risks that you must factor into your investment decisions. Here are the key risks that you need to account for.

• Market Risk

Even when investing in the best index funds in India, the risk of market downturns remains. Index funds mirror the performance of the underlying index, meaning they decline when the market falls. This lack of active management to mitigate losses makes them highly susceptible to broad market trends.

• Sector Concentration Risk

When investing in specific categories like the best mid-cap index funds in India, you face sector concentration risk. Mid-cap funds, for instance, often have higher exposure to specific industries. If a dominant sector within the index underperforms, the entire fund’s returns can suffer and amplify the risks compared to more diversified investments.

• Tracking Error

The best index funds to invest in India may still experience tracking errors, where the fund's performance deviates from its benchmark. This can occur because of expenses, cash holdings or inefficient portfolio replication. Even small deviations over time can affect returns and impact the fund’s performance.

• Limited Flexibility

Even the best options on the list of the best index funds in India may not be flexible enough to adapt to changing market conditions. These funds passively track their index and cannot avoid poor-performing stocks or sectors. Their rigid structure exposes investors to risks during volatile or unfavourable market phases.

• Volatility Over Time

The best index funds for long-term investment can still expose you to extended periods of volatility. While long-term investing does help weather short-term fluctuations, prolonged market downturns or economic slowdowns can significantly affect the fund's value. This is why you need patience and a high tolerance for risk to invest in the equity market.

How to Invest in Index Funds?

You can easily invest in the best index funds in India directly with the mutual fund house. Alternatively, if you have a demat and trading account, you can also invest through the mobile or web trading platform offered by your brokerage partner. Follow these simple steps to purchase units in the index funds of your choice:

• Step 1: Launch the App

Begin by opening and signing into your trading application on your mobile device or logging into the web trading platform.

• Step 2: Research and Select

Browse through the available list of the best index funds in India and identify the fund you want to invest in.

• Step 3: Initiate Purchase

Once you've chosen your index fund, tap the 'Buy' option to start the transaction process.

• Step 4: Set Your Parameters

On the order screen, specify both your desired purchase price and the quantity of index fund units you wish to acquire.

• Step 5: Complete the Transaction

Execute your trade immediately to make the purchase online.

After your order is successfully processed, you can view your newly acquired index fund units in your trading application.