Index Mutual Funds

An index fund is a mutual fund that must keep at least 95% of its total assets in the securities of one index. A mutual fund is a pool of money from many people, invested by a professional manager under SEBI rules. An index is a list of companies picked by fixed rules, whose combined value is tracked every day. Here, the securities are the shares of the companies in that index.

SEBI's definition says an index fund “invests in securities in the same proportion of an index”. So it holds each company in the index's own weights. When the index changes, the fund must rebalance, buying and selling so its holdings match again, within 7 calendar days.

SEBI has one category for all of these, called Index Funds/ETFs. A category is SEBI's label for what a fund may hold. An ETF, or exchange traded fund, follows an index the same way, but its units must trade on a stock exchange.

SEBI files this category in its “Other” group, not among its equity categories. Koshex lists the page under equity, meaning company shares, because these funds track Indian share indices grouped by company size.

The five size groups here, from large cap to small cap index, are names from our fund data, not SEBI's. Each follows the same 95% rule for its own index.

An index fund must hold its index, while an actively managed fund meets a floor, and its manager picks the holdings. The index style is called passive: the fund follows an index, not a manager's choices.

Take a large cap fund. It keeps at least 80% in companies ranked 1 to 100 by market capitalisation. That is a company's share price times its number of shares. The manager picks which of those companies to own, and what to do with the rest. A large cap index fund must keep at least 95% in its index's securities.

How many a fund house can run. A fund house is the company that runs mutual funds. It may offer only one scheme per category, with a few exceptions. Index funds are one: a fund house may run several, one for each different index.

The fee cap. The expense ratio is the fund's yearly fee, shown as a percentage of your money and taken out of the fund's value. Regulation 66(7) of SEBI's Mutual Funds Regulations 2026 caps the base expense ratio, the fee before brokerage, trading costs and taxes such as GST.

• An index fund or ETF: at most 0.90% a year of its daily net assets, the money it manages.
• An actively managed equity-oriented fund: up to 2.10% on its first ₹500 crore, falling in steps to 0.95% on the balance.

So SEBI allows index funds a lower maximum fee. These are ceilings, not what every fund charges.

What stays the same. Both kinds carry the same riskometer, SEBI's risk label, and face the same equity tax test, both explained below.

Tracking error and tracking difference are two published measures of how closely an index fund follows its index. Tracking error shows how unevenly an index fund's daily returns follow its index's, measured over the past year. For equity index funds, SEBI says it “shall not exceed 2%”.

SEBI measures it using the fund's NAV, the price of one unit. Its wording: “Annualized standard deviation of the difference in daily returns between the underlying index or goods and the NAV of the ETF/ Index Fund based on past one year rolling data”.

In plain words, the fund and its index earn slightly different returns each day, and tracking error measures how widely those daily gaps spread.

Tracking difference is the yearly gap between the index's return and the fund's. SEBI defines it as the “Annualized difference of daily returns between the index or goods and the NAV of the ETF / Index Fund”. For equity index funds, SEBI's target for it is the fund's actual total expense ratio, its full yearly fee, including brokerage, trading costs and taxes, plus 0.50%. This covers broad Indian share indices with ₹5,000 crore or more held across passive funds, among others.

Each index fund publishes its tracking error daily, on its fund house's website and on AMFI's, the mutual fund industry body. Tracking difference comes out monthly on the same sites, for 1, 3, 5 and 10 years and since launch.

Yes. Nearly every listed index fund read Very High on 29 September 2026. The riskometer is the risk label SEBI makes every fund show, on six levels from Low to Very High, checked every month.

SEBI's formula scores a fund's shares on company size, daily price swings and impact cost, how far a price moves on a large trade. A portfolio fully in large caps, with low swings and low impact cost, scores exactly 5, which is High. Any mid or small cap holding pushes it into Very High. So a large cap index fund sits at High to Very High, and mid and small cap ones at Very High.

Index data from NSE Indices shows how deep past falls went:

• The NIFTY 50 fell 59.9% from 8 January to 27 October 2008, and 38.4% from 14 January to 23 March 2020.
• The NIFTY Midcap 150 fell 44.2% from 8 January 2018 to 23 March 2020.
• The NIFTY Smallcap 250 fell 60.8% from 15 January 2018 to 24 March 2020.

These price-index figures leave out dividends, the cash companies pay shareholders. A fund on the NIFTY 50 must hold at least 95% in that index's shares, so it is exposed to falls like these.

In rupees, suppose ₹1,50,000 sat in something that fell 60.8%. It would be worth ₹58,800 for a while.

Koshex suggests matching your time frame to the size of company the fund's index follows. AMFI ranks every listed company by full market cap every six months. Ranks 1 to 100 are large cap, 101 to 250 mid cap, and 251 onwards small cap. On the list for the six months to 30 June 2026, rank 100 was GAIL (India), at an average ₹1,06,346 crore.

These horizons come from the matching size categories. They are our judgement, not SEBI rules.

• Large cap index: 5 years or more.
• Large & mid cap index: 5 to 7 years.
• Mid cap index: 7 years or more.
• Multi cap index: 7 years or more.
• Small cap index: 7 years or more.

An index fund's only SEBI rule is 95% in its own index. A multi cap index fund is not bound by the active multi cap fund's 25% floors in large, mid and small caps. Since the fund's name must include its index's name, the name tells you which index you are buying.

A domestic equity index fund meets the 65% test, so it is taxed as an equity fund. Under the Income-tax Act, 2025, that test needs at least 65% in shares of Indian listed companies, on a yearly average (section 198(8)).

Your holding period, how long you owned a unit before selling it, decides the rate.

• Short-term capital gain: profit on units held 12 months or less, taxed at 20% (section 196).
• Long-term capital gain: profit on units held longer, taxed at 12.5% (section 198). Only the part above ₹1,25,000 of such gains in a tax year is taxed.

Suppose you sell units held more than 12 months at an assumed gain of ₹1,40,000. You have no other equity long-term gains that tax year. Only the part above ₹1,25,000 is taxed: ₹15,000. Tax at 12.5% is ₹1,875. Cess, an extra 4% charge on the tax, adds ₹75. You pay ₹1,950.

A ₹35,000 gain on units held 12 months or less is taxed at 20%, which is ₹7,000, plus ₹280 cess, so ₹7,280. Both examples leave out surcharge, an extra charge on the tax once total income passes ₹50 lakh.

A fund of funds invests in other funds. It qualifies only if at least 90% goes into a listed fund that itself holds at least 90% in such shares. No TDS, tax deducted before money reaches you, is taken when a resident redeems, meaning sells units back to the fund.

Decide the index size first, then compare funds that track the same index. Of the 182 funds listed, 93 have a 3-year record, so only those are ranked on 3-year return and counted in the averages.

• 3-year and 5-year CAGR: the average yearly growth rate over the period, as if the fund grew at the same pace every year.
• Expense ratio: the yearly fee. SEBI caps an index fund's base fee at 0.90%.
• AUM (assets under management): the current total value of the money a fund manages, not the amount people paid in. The listed funds hold ₹2,25,376 Cr between them.
• Riskometer: each fund's own current level.

Across index funds with a 3-year record, large cap to small cap, the average return is -3.7% over 1 year. The average CAGR is 2.3% over 3 years and 7.7% over 5 years. They mix every size group, so they are not any one index's return.

Koshex is a distributor (AMFI registration ARN-154632), a registered intermediary that helps you buy and manage funds. Through us you buy the regular plan, the version of a fund bought through a distributor. We help you choose a fund that suits your goal and timeline. We also review your holdings over time and flag changes, such as a fund's category, risk or ranking shifting.

Either works. A SIP spreads your buying over time, and a lumpsum puts the money in at once. How much fits depends on your horizon, what you already hold and how big a fall you can sit through. An index fund's role is to hold one index as it stands, beside or instead of an active fund in the same size band. If you already own a large cap or flexi cap fund, count that money when you judge how much fits.

A SIP invests a fixed amount at regular intervals, usually monthly. Each instalment buys units at that day's NAV and has its own holding period.

There is no lock-in, a period during which you cannot sell at all. Each scheme sets its own exit load, a fee some funds charge if you sell within a set time after buying. When you redeem, the money must reach you within 3 working days.

The pull to sell is strongest in a fall like the NIFTY 50's 38.4% drop between 14 January and 23 March 2020. Koshex talks you through sharp market falls before you redeem.