Best Index Funds to Invest in India in 2026

Index funds have become a go-to investment option for Indian investors who want market returns without the headache of selecting individual stocks. They are especially an ideal choice for new investors, as they offer a diversified exposure to the stock market, lower risk compared to individual stocks, and minimal fees. 

Table of Content

• What Are Index Funds?
• Why Index Funds Are Popular in 2026
• How to Choose the Best Index Fund in 2026?
• How to Start Investing in Index Funds?

However, not all index funds are created equal. Some track the Nifty 50, others mirror the Sensex, while certain funds focus on mid-cap or sector-specific indices. The differences in tracking error, expense ratios, underlying benchmark, and the credibility of the fund house can significantly impact your returns over time. This is why choosing the best index funds requires more than just looking at past performance.

To help you make an informed decision, here is everything you need to know about choosing the best index funds in India.

What Are Index Funds?

Index funds are a type of mutual fund that is designed to replicate the performance of a specific market index. For instance, if you invest in an Nifty 50 fund, the index will replicate the performance of its benchmark: the Nifty 50. So, if the Nifty 50 index goes up, so does the index value. Similarly, if the Nifty 50 Index falls, so will your index fund.

Why Index Funds Are Popular in 2026

The shift toward passive investing has increased in recent years. Investors are increasingly prioritising clarity, cost control, and long-term discipline over frequent portfolio churn.

Here are a few reasons why index funds continue to gain traction in 2026:

• Diversification Advantage: In index funds, instead of putting all your money in one or two stocks, you are investing in an entire market index that includes dozens (or even hundreds) of companies. This helps reduce the impact of adverse performance by any single stock.
• Cost Efficiency: Most index funds have an expense ratio of below 0.10 per cent. This lower cost means more of your money remains invested and compounding over time.
• Performance Consistency: Index funds aim to replicate the performance of the market index they track. While they may not outperform the market, they offer steady, market-linked returns over the long term, making them reliable for disciplined investors.
• Suitable for Systematic Investing: Investing regularly through a Systematic Investment Plan (SIP) helps you buy more units when prices are low and fewer when prices are high. This averages out your overall cost, reduces the risk of investing at the wrong time, and encourages steady wealth creation even when markets are volatile.

Suggested Read: How to Invest in Index Funds: A Beginner's Guide

How to Choose the Best Index Fund in 2026?

Here is how you can choose the best index fund in 2026:

Check the Benchmark Index

Start by understanding which index the fund tracks.

• Large-cap indices (like Nifty 50 or Sensex) are generally more stable.
• Mid-cap indices offer higher growth potential but come with more volatility.
• Sectoral indices are riskier as they focus on specific industries.

Choose an index that matches your risk tolerance and long-term objectives.

Compare Expense Ratio

The expense ratio is the annual fee charged by the fund house. Since index funds are passively managed, their costs are usually low. However, even a small difference can significantly affect your returns over the years. So, choose a fund with a lower expense ratio to get better returns.

Evaluate Tracking Error

Tracking error shows how closely the fund replicates its benchmark index. A lower tracking error means the fund is accurately following the index. On the other hand, a high tracking error indicates that the fund manager is not managing the inflows and outflows effectively.

Look at Assets Under Management (AUM)

Funds with a reasonable AUM often indicate investor trust and fund stability. Larger funds may also provide better liquidity.

Align with Your Investment Horizon

Index funds are generally suitable for long-term goals (5 years or more). They work particularly well when invested through SIPs, helping manage market ups and downs.

Review Fund House Credibility

Choose a fund managed by a reputable and transparent asset management company. A strong track record and good governance standards add confidence to your investment.

How to Start Investing in Index Funds?

Here is how you can start investing in the top index funds in India:

• Complete your KYC process.
• Choose the right investment platform. You can either invest directly via AMC or choose to invest via a mutual fund distributor.
• Choose between SIP or lump sum investment.
• Explore different index funds available in the market and choose one that suits your financial objectives the best.
• Review your portfolio periodically, but avoid frequent switching.

Suggested Read: Index Funds vs. Mutual Funds: Key Differences That You Should Know

Choosing the best index fund in India in 2026 is less about picking a specific name and more about understanding the fundamentals. By focusing on expense ratio, tracking error, benchmark index, and your investment horizon, you can make informed decisions that will earn you good returns in the long run.

At Muthoot Finance, we combine expert guidance, in-depth market understanding, and disciplined investment methods to help you choose the best index fund investments. For more information, visit your nearest Muthoot Finance branch.