5 Best Index Mutual Funds to invest in 2022

Best Index Mutual Funds to invest in 2022When Nifty goes up, some of the active mutual funds might not go up on the similar line. In the same way when Sensex goes down, active funds might go down heavily compared to the index. If you one among such investor where you want your money to grow in line with a particular index, you can invest in index mutual funds. Index mutual funds would replicate the underlying index, which can be Nifty50 or Sensex or Midcap index or Smallcap index. In this article we would discuss about 5 Best Index Mutual Funds to invest in 2022 in India. These index funds are across Nifty, Nifty Next50, Midcap, Small Cap and US S&P 500.

Also Read: 5 Mutual Funds that generated 1000% returns in last 10 years

What are Index Mutual Funds and how do they work?

Index funds in simple terms would invest in stocks of the particular index according to their weightage and replicate index performance except for tracking error and expense ratio.

E.g. If Nifty 50 index goes up by 4%, Nifty 50 index funds also go up by 4%.

If Nifty 50 goes down by 3%, Nifty50 index fund also goes down by 3%.

Index funds are also termed as “passive funds” as they replicate index performance without any active participation from the fund manager.

Benefits of investing in Index Funds

You might be wondering why one should go for investing in index funds instead of passive funds.

Here are some major benefits of investing in index funds.

1) Replicate index:  Index funds would invest in stocks that are part of the index and replicate the performance. If you think Nifty would go up in coming years, you can invest in Nifty50 index fund. If you think Midcap segment would outperform in next 5-10 years, you can invest in the mid cap index fund.

2) No intervention by fund manager: Since index funds would invest in stocks that are part of the index, there is no intervention by the fund manager. This is irrespective whether the underlying stocks are doing good or bad.

3) Low expense ratio: Since the index fund invests in stocks that are part of the underlying index, there is no need for a large research analyst team, hence such funds come with low management fees.

4) Easy to manage: One should not be worrying whether their fund would outperform in medium to long term or not. Stock markets might be volatile in the short term, however, would always go up in medium to long term. Hence it is easy to manage and invest in such funds.

5) Stable returns: Index funds would not provide abnormal returns, however they provide stable returns. If you take Nifty 50 index, the returns are ranging between 10% to 12% in medium to long term. Investing in consistent performing mutual funds can always reward investors.

Who should invest in index funds?

Index funds are not suitable for everyone. One can pick-up right index fund based on risk appetite and tenure of investment.

1) One should invest in index funds based on their risk appetite. E.g. Nifty50 index fund could be moderate to high risk. Midcap or Small cap index funds are only for high risk takers.

2) Index funds are good for medium to long term. If you are short term investor who want to invest for < 5 years, stay away from such funds. If you are medium to long term investors of say 5-10 years, you can invest a small portion of the portfolio in index funds. If you are a long term investor of over 10 years, you can consider good amount of investments in such index funds.

3) Investors who are expecting 10% to 12% annualized returns in the medium to long term only can invest in such index funds.

List of Best Index Mutual Funds to invest in 2022

These funds are filtered based on various indices in India and in US. We filtered 1 index fund each from Nifty 50, Nifty Next 50, Midcap, Small Cap and S&P 500 Index (US).

#1 – HDFC Index Fund Nifty 50 Plan or UTI Nifty Index Fund

#2 – UTI Nifty Next 50 Index Fund

#3 – Motilal Oswal Nifty Midcap 150 Index Fund

#4 – Nippon India Nifty Small Cap 250 Index Fund

#5 – Motilal Oswal S&P 500 Index Fund

With funds indicated in 1 to 4, one can cover all NIFTY500 stocks and 5th fund is to invest in S&P 500 companies from the US.

Best Index Mutual Funds for 2022 – Performance and Risk Metrics

#1 – Nifty 50 Index – HDFC Index Fund Nifty 50 Plan or UTI Nifty Index Fund

NIFTY 50 index is a well-diversified 50 companies index reflecting overall market conditions. NIFTY 50 Index is computed using free float market capitalization method.

Performance of Nifty50 Index

  • Returns in last 1 year – 13%
  • Annualised returns in last 5 years – 14%
  • Annualised returns since inception – 13%

Both HDFC Index Fund Nifty 50 Plan and UTI Nifty Index fund have low expense ratios of 0.2% to 0.3%, hence is considered as one of the Best Nifty Index Funds to invest in 2022.

#2 – Nifty Next 50 – UTI Nifty Next 50 Index Fund

NIFTY Next 50 Index represents 50 companies from NIFTY 100 after excluding the NIFTY 50 companies.

NIFTY Next 50 is computed using free float market capitalization method wherein the level of the index reflects total free float market value of all the stocks in the index relative to a particular base market capitalization value.

Performance of Nifty Next50 Index

  • Returns in last 1 year – 15%
  • Annualised returns in last 5 years – 12%
  • Annualised returns since inception – 16%

UTI Nifty Next 50 Index Fund has a low expense ratio of 0.33%, hence is considered as one of the Best Nifty Next 50 Index Funds for 2022.

#3 – Midcap 150 Index – Motilal Oswal Nifty Midcap 150 index Fund

NIFTY Midcap150 consists of 150 companies (companies ranked 101-250) based on market capitalisation from NIFTY 500. This index is intended to measure the performance of mid market capitalisation (Midcap) companies.

NIFTY Midcap-150 Index is computed using free float market capitalization method, wherein the level of the index reflects the total free float market value of all the stocks in the index relative to particular base market capitalization value.

Performance of Nifty Midcap 150 Index

  • Returns in last 1 year – 16%
  • Annualised returns in last 5 years – 15%
  • Annualised returns since inception – 16%

Motilal Oswal Nifty Midcap 150 index Fund has a low expense ratio of 0.21% among mid cap index funds, hence is considered as one of the Best Nifty Midcap Index Funds to invest in India. In case you are looking for active funds, you can also check some of the Best Midcap Mutual Funds to invest in 2022.

#4 – Smallcap 250 index – Nippon India Nifty Smallcap 250 index Fund

NIFTY Smallcap-250 index represents the balance 250 companies (companies ranked 251-500) from NIFTY 500 companies. This index is intended to measure the performance of small market capitalisation (small-cap) companies.

NIFTY Smallcap250 Index is computed using free float market capitalization method, wherein the level of the index reflects the total free float market value of all the stocks in the index relative to particular base market capitalization value.

Performance of Nifty Smallcap 250 Index

  • Returns in last 1 year – 27%
  • Annualised returns in last 5 years – 12%
  • Annualised returns since inception – 15%

Nippon India Nifty Smallcap 250 index Fund has a low expense ratio of 0.3% among small cap index funds, hence is considered as one of the Best Nifty Small Cap Index Funds for 2022. In case you are looking for active funds, you can also check some of the Best Smallcap Mutual Funds to invest in 2022.

#5 – S&P 500 Index – Motilal Oswal S&P 500 Index

The Standard and Poor’s 500, or simply the S&P 500, is a stock market index tracking the performance of 500 large companies listed on stock exchanges in the United States.

NASDAQ 100 Index majorly has technology stocks, hence is riskier. On other side S&P has 500 large companies which are more stable compared to NASDAQ 100 Index.

Performance of S&P 500 Index

  • Returns in last 1 year – 12%
  • Annualised returns in last 5 years – 15%
  • Annualised returns since inception – 16%

Motilal Oswal S&P 500 Index is the only fund in India that tracks S&P 500 index with an expense ratio of 0.52%. Hence is considered as one of the Best S&P 500 Index Fund to invest in India in 2022.

Note: Currently there are temporary restrictions on overseas funds, one can invest once such restrictions are removed.

Have you liked our tips and analysis? Then share it on your Facebook, Twitter, Telegram and other social media, which might be useful to your friends too.

6 comments

  • Vasudeva G Navilekar

    Sir, I want to invest for a short period of 12-15 months funds kept for my daughter’s marriage. Which scheme would you suggest?

  • veera

    Dear Suresh

    UTI AMC wise under performing is it worth to buy their UTI Index 50 and N50 Fund for next 20 years to accumulate the corpus on it ?

    Regards
    Veera

    • Hello Veera, These funds invest in respective index. In the long term of 10-20 years, index would any ways goes up. You cannot expect very high returns, however 10% to 12% reasonable returns can be expected. There is minimal intervention from fund manager in such index funds, hence it is sure shot that you can get gains in long term.

      • Raj

        What is the duration we should keep in mind before investing in Index funds? Can we expect 10% + returns in 3 to 5 years?

        • Its already indicated in point on.2.

          If you are short term investor who want to invest for < 5 years, stay away from such funds. If you are medium to long term investors of say 5-10 years, you can invest a small portion of the portfolio in index funds. If you are a long term investor of over 10 years, you can consider good amount of investments in such index funds.

Leave a Reply

Your email address will not be published.