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What is Index Funds - When to Invest in Index Fund - Index Funds Vs Active Funds

Updated: Dec 29, 2023


What is Index Fund & When to Invest in Index Fund

Active Funds are actively managed by the fund manager which simply means that the creation and rebalancing decisions of the portfolio are taken by the fund manager. Index Funds are passive funds i.e., a replication of the benchmark itself. In simple words, Index Funds have the same composition as the benchmark (such as Sensex, NIFTY and so on) and the fund manager just copies the movement of the benchmark in its portfolio.


Difference between Index Funds and Active Funds

1. Fund Manager: In Active Funds, the Fund Manager holds great significance as all the portfolio-related activities and decisions are taken by the Fund Manager. In Index Funds, the Fund Manager is responsible for mirroring the portfolio as per the benchmark.

2. Performance: Active funds offer relatively high returns and aim to perform better than the benchmark whereas Index funds aim to perform at par with the benchmark.

3. Risk Involved: Active funds are considered higher in risk than Index Funds as the active funds are managed as per the discretion of fund manager whereas risk in Index Funds depends on the benchmark.

4. Cost Incurred: Index Funds are relatively cheaper than Active Funds. The expense ratio of Index Fund usually does not exceed 0.1% whereas for Active Funds the expense ratio is up to 0.7% which reflects that there is significant difference between the two in terms of cost.

5. Simplicity: Prior to investing in an active fund, investor needs to do detailed research (such as past performance, fund manager, total Asset under management etc), however, in case of index funds, these funds are similar to the benchmark which makes them simple to understand and analyse.

6. Flexibility: Active funds are more flexible in responding to the market changes whereas index fund only invests in accordance with the benchmark.


An investor should invest in an actively managed fund or an index fund varies as per:

1. Risk Appetite: An investor with low-risk appetite should chose index fund as index fund will provide return similar to benchmark at lower level of risk whereas an investor with high-risk appetite should chose active fund as it offers relatively higher return.

2. Competence of Investor: An investor who is well versed with mutual funds as well as market and capable of performing thorough research may opt for actively managed funds whereas an investor who is beginner is advised to invest in index funds.

3. Time Commitment: An investor who can commit time so as to research and analyse fund (i.e., fund manager, past performance and so forth) may opt for actively managed funds else investor is advised to choose index funds.

4. Return Expectations: An investor with high return expectations may choose to go for actively managed funds.


Top Performing Index Funds

Scheme Name

2 Weeks

1 Month

2 Months

3 Months

6 Months

1 Year

2 Years

3 Years

Expense Ratio

DSP Nifty 50 Equal Weight Index Fund

0.49

6.79

8.90

8.07

16.48

22.91

18.49

21.63

0.92

DSP NIFTY Next 50 Index Fund -Reg (G)

0.62

8.78

14.18

11.44

15.87

17.57

12.88

16.81

0.60

HDFC Index Fund-NIFTY 50 Plan(G)

1.00

7.35

8.30

6.34

12.74

15.77

13.67

16.20

0.40

HDFC Index Fund-NIFTY 50 Plan(G) (Post Addendum)

1.00

7.35

8.30

6.34

12.74

15.77

13.67

16.20

0.40

DSP NIFTY 50 Index Fund-Reg(G)

1.01

7.36

8.31

6.35

12.77

15.77

13.68

16.19

0.40

Aditya Birla SL Nifty 50 Index Fund-Reg(G)

1.00

7.35

8.28

6.31

12.68

15.57

13.44

15.93

0.48

Franklin India NSE Nifty 50 Index Fund (G)

1.00

7.23

8.14

6.18

12.39

15.26

13.26

15.72

0.62

Axis Nifty 100 Index Fund-Reg (G)

0.88

7.68

9.18

7.12

13.12

14.47

12.44

15.26

0.92

Edelweiss MSCI India Domestic & World Healthcare 45 Index Fund- Reg(G)

0.61

3.98

7.00

4.51

15.21

21.82

9.64

10.97

1.04

For a detailed analysis of returns offered by various mutual fund schemes visit the The Number News prepared MF-Report Card at https://www.thenumbernews.com/mf-corner.


For other interesting conceptual topics please visit our other contents:

What are Mutual Funds and its types: https://www.thenumbernews.com/post/mutual-funds-its-types

Fundamental Analysis and its key ingredients: https://www.thenumbernews.com/post/fundamental-analysis


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