Types of funds
What is an index fund?
An index fund copies a market index, such as the Nifty 50, by holding the same shares in the same proportions, instead of picking stocks.
How it works
Because no stock picking is involved, index funds usually have low expense ratios. Their return is the index's return minus costs and a small tracking difference.
Unlike an ETF, an index fund is bought and sold at its daily NAV through the fund house, with no demat account needed.
Example
If the Nifty 50 TRI returns 12% in a year, a Nifty 50 index fund with a 0.2% expense ratio might return about 11.7% after costs and tracking difference.
Keep in mind
- Compare index funds on the same index by expense ratio and tracking error.
- An index fund falls with the market; it is not lower risk than active funds.
Questions people ask
Index fund or ETF?
Both track an index. Index funds work at daily NAV without demat; ETFs trade on the exchange through the day.
Can an index fund beat the index?
No, it aims to match it, minus costs.
Related terms
General information for education, not investment advice or a recommendation of any scheme. Mutual Fund investments are subject to market risks, read all scheme related documents carefully. Past performance may or may not be sustained in future. Last reviewed 25 October 2026.