A passively managed mutual fund that replicates the composition and performance of a market index such as Nifty 50 or Sensex.
An index fund tracks a market benchmark by holding the same securities in the same proportions as the index. The fund manager does not make active stock selection decisions — the portfolio mirrors the index constituents.
Instead of paying a manager to pick stocks, an index fund simply copies Nifty 50 or Nifty 100. If Nifty 50 rises 15%, the fund rises roughly 15% minus a tiny expense ratio. The bet is that most active fund managers fail to consistently beat the index over the long run.
The fund buys all (or most) securities in the benchmark index in the exact proportions defined by the index.
When the index rebalances (adds/removes stocks or changes weights), the fund rebalances too.
Because there's no active research, expense ratios are very low — often 0.10%–0.20% versus 1–2% for active funds.
Tracking error measures how closely the fund follows the index.
Monthly SIP: ₹10,000 | Period: 10 years | Benchmark gross return: 14% Index Fund (TER 0.15%, net 13.85%): Corpus → ~₹26.1 lakh Active Large-Cap Fund (TER 1.5%, net 12.5%): Corpus → ~₹22.9 lakh Difference: ₹3.2 lakh — from cost alone, before accounting for any manager underperformance.