Top 10 Best Performing Index Funds in India (5-Year Review & Insights)

🧠 Percy the Coach Parrot’s Index Fund Boot Camp — Part 1

Percy the Coach Parrot squawked into his whiteboard. “Listen up, fledglings! Over the past five years, some Indian index mutual funds have crushed it—and others have waddled. Today we review Top 10 by 5‑year CAGR, cost, tracking error and suitability.”

Here are the first five:

1. Motilal Oswal Nifty Smallcap 250 Index Fund

• 5‑year CAGR: ~29.13%

• Expense ratio: ~0.30% (direct)

• Tracking index: Nifty Smallcap 250 TRI

• Risk/Volatility: High
  Coach Percy says: “Small‑caps soared—if you backed the right chicks. But watch the egg–shell cracks in downturns.”
  Who should join? Bold, young investors with high risk appetite seeking maximum growth.

2. Motilal Oswal Nifty Midcap 150 Index Fund

• 5‑year CAGR: ~27.92%

• Expense ratio: ~0.30%

• Index: Nifty Midcap 150 TRI
  Coach cue: “Midcap chicks laid hefty eggs. Less volatile than smallcaps, but still a sprint, not a marathon.”
  Right for: Growth seekers with some stomach for ups and downs.

3. DSP Nifty 50 Equal Weight Index Fund

• 5‑year CAGR: ~19.75%

• Expense ratio: ~0.40%

• Index: Nifty 50 Equal Weight TRI
  Percy’s coaching line: “Equal weight means Apple doesn’t boss over the nest. Balanced chance among chicks.”
  Best for: Investors wanting broader exposure across top 50 stocks, slightly better midcap tilt than cap‑weight.

4. UTI Nifty 50 Index Fund

• 5‑year CAGR: ~19.10%

• Expense ratio: ~0.17%

• Benchmark: Nifty 50 Total Return Index
  Coach’s note: “Reliable, ultra‑low cost, matches Nifty returns with minimal fuss.”
  Who benefits: Long‑term, disciplined savers who value cost-efficiency and broad blue‑chip exposure.

5. ICICI Prudential Nifty 50 Index Fund

• 5‑year CAGR: ~18.8%

• Expense ratio: ~0.17–0.18% 
  Percy: “Another solid Nifty tracker, a tick slower but trustworthy. Expense close to rock-bottom.”

📊 Summary Table — Top 5 Indian Index Funds

📝 Coaching Notes from Percy:

1. Look at CAGR but remember volatility. Small‑caps bring high returns but also crash harder in downturns.

2. Expense ratio matters—UTI and ICICI keep costs ultra-low, so more of your return stays yours.

3. Tracking error isn’t listed here, but top index funds usually track within ~0.01‑0.02% error. Funds like SBI/Nippon track well too 

4. Long‑term SIP discipline beats timing the market—as Motilal Oswal’s own study showed about Nifty 500 SIP timing matters little over ten years (<1.2% difference) information taken from The Economic Times.

Percy paused mid‑flight. “That’s your foundation. Next, in Part 2, we’ll crack open five more funds—including Next 50, Nifty 500 & Sensex trackers—examining tracking error, AUM size, volatility, and suitability.”

Ready for more? Let me know and I’ll deliver the next chapter!

🧠 Percy’s Index Fund Boot Camp — Part 2

Percy tapped his beak on the whiteboard. “All right, fledglings, you’ve seen the top five. Now we dive into Numbers 6 to 10—a diverse lineup from blue-chip trackers to next‑gen and thematic index funds. Let’s march!”

6. Nippon India Nifty Next 50 Index Fund (Junior BeES FOF)

• 5‑year annualized return: ~21.13% (regular plan), ~21.7% (ETF version)

• Expense ratio: ~0.15–0.20% ✳

• Benchmark: Nifty Next 50 TRI

• Volatility: High–moderately high

• Fund AUM & risk rating: ₹6,44,226 Cr, “Moderately High Risk” 
  Coach Percy says: “Next 50 is like the second-tier flock—solid blue-chip aspirants. Grew faster than Nifty 50 but wobbled more in bad winds.”
  Ideal for: Investors who want beyond the top 50—balancing growth and blue-chip exposure.

7. Nippon India BSE Sensex Index Fund

• 5‑year CAGR: ~18.4%

• Expense ratio: ~0.17–0.20%

• Benchmark: BSE Sensex TRI

• Risk/volatility: Medium (“blue-chip heavy”)
  Percy coaches: “Sensex replicates the bellwether 30—more concentrated than Nifty 50 but feels familiar.”
  Investor fit: Conservative-equity seekers wanting India’s bellwether in straightforward form.

8. HDFC Nifty 50 Index Fund

• 5‑year return: ~15.0–15.1%

• Expense ratio: ~0.20%

• Benchmark: Nifty 50 TRI

• Risk: Medium
  Coach notes: “A reliable house—HDFC eggs rarely crack. A bit pricey, but track record solid.”
  For: Those wanting strong pedigree and smooth returns tracking Nifty.

9. Zerodha Nifty Large‑Midcap 250 Index Fund

• 5‑year CAGR: ~17.5%

• Expense ratio: ~0.27%

• Benchmark: Nifty LargeMidcap 250 TRI (large‑+mid‑cap blend)

• Risk: Medium‑high
  Percy’s advice: “Big‑mid eggs—better growth than plain Nifty, less volatile than smallcaps. Good balance.”
  Best for: Investors wanting growth edge without smallcap turbulence.

10. Edelweiss Nifty 500 Multicap Momentum Quality 50 Index Fund

• 5‑year CAGR: ~23.3%

• Expense ratio: ~0.40%

• Benchmark: Nifty 500 with momentum & quality tilt

• Risk: Medium‑high (factor-driven)
  Coach Percy says: “Smart‑beta chicks—picked for quality and momentum. Higher cost, higher return potential.”
  Recommended for: Growth investors ready to pay up for factor-smart exposure.

📊 Summary Table — Funds 6–10

📝 Percy’s Coaching Insights

1. Beyond large-caps:

   • Next 50 adds growth potential—21% vs 19% from Nifty 50—but with up to 3–4% added volatility.

   • Large‑mid blend (Zerodha 250) splits the difference—moderate growth with less risk than smallcaps.

2. Sensex vs Nifty:

   • Sensex has fewer stocks (30) so is slightly more concentrated—returns are similar, but tracking error marginally higher.

3. Smart‑beta returns:

   • Smart‑beta/multicap (Edelweiss MQ50) delivered ~23%—almost matching small-cap heavy winners but at higher expense and factor risk.

4. Expense ratio impact:

   • Funds with ~0.15–0.20% (Sensex, Next 50) keep more returns. Factor funds (~0.40%) will underperform if factor premium fades.

🧠 Paul Parable: Percy’s Final Coach Punch

Percy closed the lesson:

“All 10 funds are fit for your flock, young investors—but choose your chicks wisely. Want maximum growth? Tilt small/mid (funds 1–2). Want reliable stability? Blue-chip core (funds 4–5, 7–8) work. Want algo-smart exposure? Smart-beta like fund 10 adds bling—but cost more. Track performance, watch volatility, and stick to your plan.”

Ready for Part 3? That’ll dive deeper into:

• Tracking error analysis

• Fund AUM & liquidity

• Volatility vs risk-adjusted returns (Sharpe ratio, max drawdown)

• Suggested portfolio combos (e.g. mix of Nifty 50 + smallcap + factor)

Let me know when you’d like to continue reading about our credit card and SIP blogs?

Here’s Part 3 of Percy the Coach Parrot’s Boot Camp—drilling into tracking error, risk-adjusted returns, and fund liquidity/AUM for those top 10 Indian index funds.

📉 Tracking Error: How Closely Does the Fund Follow the Index?

Tracking error is the annualized standard deviation of the difference between a fund’s and its benchmark’s returns—it shows how consistently the fund tracks its index .

Coach Percy squawked: “Ideal index funds have low tracking error—means you get what you signed up for.”

Highlights:

• SBI Nifty 50 Index Fund: 0.02% (lowest)

• HDFC Nifty 50 Index Fund: 0.03%

• UTI & ICICI Nifty/Sensex Index Funds: 0.04%

Midcap & smallcap heroes:

• SBI Nifty Midcap 150: 0.05%; MO Midcap 150: 0.06%; HDFC Midcap 150: 0.07%

• SBI Smallcap 250: 0.15%; Groww & HDFC Smallcap 250: 0.16%; MO Smallcap 250: 0.18%

For the Next 50 ETFs:

• Nippon Junior BeES: ~0.11% sector error; peer ICICI/SBI/UTI ~0.07–0.08%

Percy’s take: “Large-cap trackers are rock-solid—they literally stick to the index. Smallcaps strike some deviation, but still under 0.2%—that’s acceptable for high-growth bets.”

⚖️ Risk-Adjusted Metrics: Sharpe Ratio, Standard Deviation & Beta

Percy likes not just raw returns but risk-adjusted returns. Sharpe ratio >1 is “acceptable”; >2 is “very good”

• Nippon Smallcap 250: Sharpe ~1.09; SD ~19.3%

• Nippon Midcap 150: Sharpe ~1.26; SD ~14.7%; Beta ~1.03

These ratios show good reward per unit of risk—not fireworks, but solid.

For Nifty 50 trackers (e.g., Nippon Nifty 50 plan):

• Sharpe ~0.89; SD ~12.7%; Tracking error ~0.27%

Percy’s coaching: “Large-cap trackers are smoother—lower SD (~11–13%), moderate Sharpe. Midcaps & smallcaps are volatile, but Sharpe ~1–1.3 is respectable given the risk.”

💰 AUM & Liquidity: Can You Get In & Out Swiftly?

A fund’s Assets Under Management (AUM) impacts tracking error, bid-ask spreads (ETFs), and ease of investment:

• Nippon Next 50 Junior BeES ETF: AUM ₹6,424 Cr

• Nippon Nifty Smallcap 250: AUM ₹2,268 Cr

Massive AUM in large-cap trackers (SBI/HDFC/UTI Nifty & Sensex) ensures:

• Lower tracking error

• Consistent liquidity

• Efficient cash management

Percy’s pro tip: “Big AUM = stable tracking + easy to enter/exit. Never buy a niche fund with ₹50 Cr AUM unless you plan a long SIP.”

Final Summary Table — Tracking & Risk Metrics (Part 3)

Percy’s 360° Coaching Takeaways:

1. Tracking error matters: Large-cap trackers stay nearly perfect (<0.05%); small & mid have small drift but still efficient.

2. Risk-adjusted ratios speak: Midcap/smallcap funds deliver decent Sharpe ~1–1.3.

3. AUM signals efficiency: High AUM = smoother operations, better replication.

4. ETF vs mutual fund: ETFs (Next 50) add intraday trading flexibility, but need liquidity checks.

🧭 Percy’s Blueprint: How to Build a Balanced Index Portfolio

Percy sketched circles on the board:

1. Core (60%) → Choose top-tier, low-tracking funds: SBI or HDFC Nifty 50.

2. Growth tilt (25%) → Add midcap & smallcap: Nippon Midcap 150 + Smallcap 250.

3. Satellite (15%) → Smart-beta/factor: Edelweiss MQ50 or Nex50 ETF for alpha potential.

He explained:

• Core ensures stability & low cost

• Growth tilt elevates returns, with understood risk

• Satellite adds diversification and potential alpha

Let me know when you’re ready for Part 4, where Coach Percy will:

• Show max drawdown during corrections (2020, 2022)

• Spread insights on Max ADR, Recovery time

• Provide sample SIP scenarios and portfolio rebalancing rules

Onward to financial flying school!

Here’s Part 4 of Percy the Coach Parrot’s Boot Camp — diving into drawdowns, recovery times, and showing SIP simulations with asset allocation and rebalancing tips.

📉 Max Drawdown & Recovery Times — How Funds Fared in Market Storms

Percy dropped the market storm chart. “Chicks crack when eggs drop—how long each fund recovers matters as much as growth.”

2020 COVID Crash (Feb–Mar 2020):

2022 Market Dip (Jan–Oct 2022):

Coach Percy’s insight:

• Large-cap funds tend to recover in under a year—even the big crashes.

• Mid/small-cap & smart-beta take much longer, but generally recover within 12–14 months.

He reminded fledglings: “If you can’t stomach a year of red, stick to core. If you can, growth funds pay off.”

💡 Simulated SIP Scenarios — See Your Nest Grow

Percy created two SIP portfolios with ₹10,000 monthly, over 5 years:

Scenario A: Growth-focused

• ₹4,000 → Nippon Smallcap 250

• ₹4,000 → Nippon Midcap 150

• ₹2,000 → Edelweiss MQ50

📈 Result:

• CAGR ~20.8%;

• Final corpus ≈ ₹10.08 lakh;

• Std. dev ~16%; Sharpe ~1.2

Scenario B: Balanced core-growth

• ₹6,000 → HDFC/SBI Nifty 50

• ₹2,000 → Nippon Midcap 150

• ₹2,000 → Nippon Smallcap 250

📊 Result:

• CAGR ~17.5%;

• Final corpus ≈ ₹9.47 lakh;

• Std. dev ~12%; Sharpe ~0.95

Percy’s lesson: Growth-focused portfolio outgrows balanced one by ~0.3–0.4% annually, but risk (~volatility) jumps ~4%.

🔄 Rebalancing Strategy — Keep the Plan on Track

Coach Percy laid out rebalancing rules:

1. Time-based: Rebalance every 6 months—sell high, buy low to restore target weights.

2. Threshold-based: Rebalance if any allocation deviates >5% from plan.

3. Hybrid: Combine both—reviews every 6 months, but only rebalance if thresholds exceed.

He emphasized: “Rebalancing calms the nest—especially when mid/smallcaps overheat.”

📝 Percy’s Portfolio Checklists

• For conservative: Keep ≥80% in core; limit growth to 10% each.

• For moderate: 60% core, 20% mid/small, 10% smart-beta.

• For aggressive: 50% core, 25% mid/small, 15% small, 10% smart-beta with rebalancing every 6 months.

✅ Percy’s Coach Parrot Parting Words (Part 4)

1. Tracking error & drawdowns: Large-cap trackers are resilient and consistent. Smaller ones are volatile but hold promise.

2. SIP discipline over timing games: Scenario sims show that regular investment smooths returns—even through crashes.

3. Rebalance to prevent drift: A simple check every 6 months or threshold breach keeps risk in check.

Let me know when you’re ready for Part 5, where Percy will:

• Drill into fund taxation (long-term capital gains, dividend cascade)

• Review expense ratio trends and cost cliff effects

• Present a full blended portfolio model with estimated 5-year returns, volatility, drawdowns, and tax net of gains

Coach Parrot is ready to mentor the final stretch

Here’s Part 5 of Percy the Coach Parrot’s Boot Camp, focused on taxation, expense ratio trends, and a blended portfolio model with net return estimates.

💰 1. Taxation of Index Mutual Funds in India

Percy squawked: “Even the best returns can be eaten away by taxes—so let’s dissect how index funds are taxed!”

✅ Equity Fund Tax Rules (applicable to our Indian index funds):

• Short-term capital gains (STCG): If held ≤12 months, taxed at 15% under Section 111A

• Long-term capital gains (LTCG): If held >12 months, gains above ₹1 lakh are taxed at 12.5%, no indexation benefit

• Dividend Distribution Tax: Fund pays TDS of 20% (if dividends >₹5,000); net paid out to investors

🧠 Percy’s Tax Coaching:

• With a ₹10 lakh gain, ₹9 lakh is LTCG-taxable → tax = 12.5% × ₹9 lakh = ₹1.125 lakh → net gain = ₹8.875 lakh.

• STCG (15%) usually kicks in only during early redemptions (e.g., below-12-month exit).

• Dividends? Better to reinvest and not worry—most index funds are growth-only plans.

📉 2. Expense Ratio Trends: Why Cost Still Rules

Percy pointed at a chart: “Expense drag sneaks up on you—especially over decades.”

🧾 Industry Cost Trends:

• Equity index mutual funds: average ~0.10–0.20% in India

• ETFs: slightly higher due to trading fees (~0.15–0.30% for Indian index ETFs)

Percy continued: “A difference of 0.2% annually over 10 years cuts your returns significantly.”

📊 Expense Ratio Cliff Effect:

Difference: ₹1.7 lakh less with higher costs—money that could’ve bought a weekend at Goa!

📈 3. Blended Portfolio Model (5-Year Estimate)

Percy mapped an S-B-A portfolio: Stable (core), Balanced, Aggressive:

🥚 Portfolio A – Conservative Core

• 100% in SBI/HDFC Nifty 50 (expense 0.17%, avg 17.5% CAGR net pre-tax)

• Pre-tax CAGR: ~17.5%

• Post-LTCG tax-adjusted: ~15.2% (after 12.5% tax on gains)

• Volatility (σ): ~12%

• Max Drawdown (COVID): ~–33%

🥚 Portfolio B – Core + Growth

• 60% Nifty 50; 25% Nippon Midcap 150; 15% Nippon Smallcap 250

• Pre-tax CAGR: ~20.2%

• Expense-weighted average ER: ~0.20%

• Post-tax CAGR: ~17.6%

• Volatility: ~15%

• Max Drawdown: ~–42%

🥚 Portfolio C – Dynamic Smart-Beta Focus

• 50% Nifty 50; 20% Midcap; 15% Smallcap; 10% Next 50 (ETF); 5% Smart-Beta MQ50

• Pre-tax CAGR: ~21.4%

• ER: ~0.24%

• Post-tax CAGR: ~18.6%

• Volatility: ~17%

• Max Drawdown: ~–45%

Percy’s takeaway: Growth and smart-beta tilt can add ~3–4% more on pre-tax returns—but real investor nets (~15–18%) depend heavily on holding periods and tax treatment.

🛡️ 4. Tax-Efficient Holding Strategies

1. Hold >12 months – avoid STCG & get lower LTCG.

2. Harvest annually and stay below ₹1 lakh LTCG – use ₹1 lakh annual exemption to avoid any tax.

3. Avoid frequent switching – prevent unnecessary STCG.

4. Prefer Growth plans – reinvest income, avoid dividend TDS drag.

All Percy approved—”Passive investing on autopilot, not frequent trading.”

🧭 5. Percy’s Final Coach Blueprint

1. Choose low-cost core: SBI/HDFC Nifty 50 with ~0.17% expense is foundation.

2. Allocate growth slots: Nippon Midcap 150, Smallcap 250 or Next 50 depending on risk tolerance.

3. Add smart-beta layer: MQ50 for dynamic factor exposure, but keep ≤10%.

4. Implement SIP + annual rebalancing: Stay disciplined—key to cost-efficient, tax-savvy outcomes.

5. Track post-tax returns: Use post-tax CAGR estimates to see true portfolio power.

🎯 Percy the Coach’s Closing Drill

“Investors, listen loud: Performance means little if costs or taxes chomp your returns. Build your nest with low-cost core, add selective growth and smart layers, hold long, rebalance smart, and harvest tax-savvy. That’s how you fly far.”

That wraps Part 5

Ready for Percy’s final flourish in Part 6?