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Index funds are mutual funds that are designed to track the returns of a market index. An index is a group of securities that represents a particular segment of the market (stock market, bond market, etc.). An index fund is a type of mutual fund with a portfolio constructed to match or track the components of a market index, such as the Standard & Poor’s 500 Index (S&P 500). An index mutual fund is said to provide broad market exposure, low operating expenses and low portfolio turnover. These funds adhere to specific rules or standards (e.g. efficient tax management or reducing tracking errors) that stay in place no matter the state of the markets.

Index funds will hold almost all of the securities in the same proportion as its respective index. Index funds can be structured as a mutual fund, an exchange-traded fund, or a unit investment trust. Index funds are considered to be passively managed because the portfolio manager of each index fund is replicating the index, rather than trading securities based on his or her view of the potential risk/reward characteristics of various securities.

The main advantage of index funds for investors is they don’t require a lot of time to manage as the investors don’t have to spend time analyzing various stocks or stock portfolios. Many investors also find it difficult to beat the performance of the S&P 500 Index due to their lack of experience/skill in investing.

Top Index Funds

Fund Name 1 Year 3 Year 5 Year
UTI Nifty Index Fund 16.69 10.46 13.41
IDFC Nifty Fund 16.57 10.40 13.54
HDFC Index Fund 16.59 10.41 13.59
Aditya Birla SL Index Fund 15.28 9.35 12.68
Franklin India Index Fund 15.16 9.58 12.77

*The order of funds doesn’t suggest any recommendations. Investors may choose the funds as per their goals and risk.

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