What are Index Funds?

Background

Index funds are mutual funds or ETFs that aim to replicate a market index like Nifty 50 or Sensex instead of trying to beat it. They typically have lower expense ratios than actively managed funds.

Explanation

By tracking a broad index, index funds provide diversified stock market exposure with minimal stock-picking risk. Over long periods, many active funds fail to consistently outperform after costs, making low-fee index funds attractive core holdings for retirement portfolios.

Example

A 30-year-old investing ₹20,000 per month into a Nifty 50 index fund for 25 years can potentially accumulate a large corpus with low ongoing costs, which is ideal for supporting a 3–4% withdrawal rate later.

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