Index Fund — Mutual Fund Term Explained

A passively managed fund replicating a market index like Nifty 50. Ultra-low cost (0.05%). Most active funds underperform over 10+ years.

An index fund passively replicates the performance of a market index by holding the same stocks in the same proportions. No active stock selection.

Benefits: ultra-low expense ratio (0.05-0.20%), no fund manager risk, full transparency. Over 15-20 years, most active equity funds underperform Nifty 50 index funds after fees.

Related terms

• ETF (Exchange Traded Fund) — Like an index fund but traded on a stock exchange at real-time prices. Requires a demat account. Slightly cheaper than index funds.
• Tracking Error — For index funds: how closely the fund tracks its benchmark. Lower is better — high tracking error means the fund deviates from the index.
• Benchmark — The market index a fund is compared against. A fund manager must beat the benchmark consistently to justify active management fees.
• Expense Ratio — The annual fee charged by a mutual fund as a % of AUM. Covers management fees, operational costs and commissions. Deducted daily from NAV.

Browse the full mutual fund glossary, or see this concept in action in the fund screener.