Definition of Index Fund
An index fund is a mutual fund or ETF that replicates the composition and performance of a specific market index — such as the Nifty 50, Sensex, or Nifty Next 50 — by buying all (or most) securities in the same proportion as the index.
Index funds are passively managed (no active stock picking), which means they have very low expense ratios (0.1–0.2% for direct plans) compared to 1–2% for actively managed funds. Warren Buffett famously recommends low-cost index funds for most retail investors, as consistently beating the index is extremely difficult even for professional fund managers.
In India, index funds have gained significant popularity since 2020. Nifty 50 and Nifty Next 50 index funds are the most common starting points for passive investors. Over long horizons (10+ years), most actively managed large-cap funds underperform the Nifty 50 index after fees.