How to buy index funds in India — step-by-step for beginners
Buy index funds in India in 5 steps: open a demat account, choose a low-cost fund, and invest via SIP. No stock-picking skills needed.
Index funds have quietly become one of the smartest investment moves available to regular salaried Indians. Not because they’re exciting — they’re not — but because they work, they’re cheap, and you don’t need to know anything special to get started.
Here’s exactly how to do it.
First, Understand What You’re Actually Buying
An index fund is a mutual fund that copies a stock market index — like the Nifty 50 or Sensex — instead of having a fund manager pick stocks. When you buy a Nifty 50 index fund, you’re buying tiny slices of India’s 50 largest companies: Reliance, TCS, HDFC Bank, Infosys, and 46 others.
No guesswork. No fund manager betting on the “next big thing.” Just the market, doing what the market does.
The Nifty 50 has delivered roughly 12–13% CAGR over the last 20 years. CAGR means Compound Annual Growth Rate — it’s the yearly return that accounts for compounding, so ₹10,000 growing at 12% CAGR becomes about ₹96,000 in 20 years, not just ₹34,000 as simple interest would give you. That difference is why starting early matters more than starting big.
The Only Number You Should Obsess Over: Expense Ratio
Before you pick a fund, understand the expense ratio. This is the annual fee the fund house charges you, expressed as a percentage of your invested amount. It sounds tiny. It isn’t.
A fund with a 0.10% expense ratio costs you ₹100 per year on ₹1,00,000 invested. A fund with a 0.50% expense ratio costs you ₹500 on the same amount. That gap compounds over decades into lakhs of rupees.
Here’s what that looks like in practice:
| Fund Type | Expense Ratio | ₹5,000/month SIP over 20 years (12% gross return) |
|---|---|---|
| Low-cost index fund | 0.10% | ~₹49.3 lakh |
| Actively managed fund | 1.00% | ~₹44.8 lakh |
| Expensive active fund | 1.50% | ~₹42.1 lakh |
That’s a ₹7 lakh difference from a single percentage point. Index funds win this comparison almost every time because their expense ratios are so low — most good ones charge between 0.10% and 0.20%.
The two index funds worth starting with are the UTI Nifty 50 Index Fund (expense ratio ~0.20%) and the HDFC Index Fund – Nifty 50 Plan (~0.20%). Both are SEBI-regulated, widely available, and do exactly what they say.
How to Actually Buy One — The Practical Steps
You need three things: a PAN card, a bank account, and about 20 minutes.
Step 1: Choose a platform. For beginners, Kuvera or Groww are the easiest. Kuvera is free, has no transaction charges, and lets you set up automatic SIPs — Systematic Investment Plans, which means a fixed amount gets invested every month automatically, like an EMI but for your wealth. Zerodha Coin works well too, especially if you already have a Zerodha trading account.
Step 2: Complete your KYC. Know Your Customer verification is mandatory under SEBI rules. On any of these platforms, you upload your PAN, Aadhaar, and a photo. It takes about 10 minutes and is a one-time process.
Step 3: Start a SIP. Once your account is active, search for “Nifty 50 index fund”, pick UTI or HDFC, and set up a monthly SIP. If you’re earning ₹70,000/month in Bangalore and saving around ₹14,000 after expenses and rent, starting with ₹5,000/month is entirely reasonable. That’s ₹60,000 a year going into the index.
Step 4: Leave it alone. This is the hard part, and also the most important. Don’t check it every week. Don’t pause the SIP when the market falls — that’s actually when you’re buying units cheap. Set a calendar reminder to review once a year.
What About Tax?
Index funds are treated as equity mutual funds for tax purposes. If you sell after holding for more than one year, the gains are called Long Term Capital Gains (LTCG). Gains above ₹1 lakh in a financial year are taxed at 10% — no indexation benefit, but still one of the most favourable tax rates available to retail investors.
If you sell within a year, gains are taxed at 15% (Short Term Capital Gains). The simplest way to avoid this is to not sell within a year. That aligns with how index funds are meant to be used anyway.
These are not eligible for Section 80C deduction — for that, you’d need an ELSS fund, which is a different product. Index funds are purely a wealth-building tool, not a tax-saving one.
Frequently Asked Questions
Is ₹500 enough to start an index fund SIP in India?
Yes. Most platforms like Groww and Kuvera allow SIPs starting at ₹500/month. Starting small is far better than waiting until you can invest more — a ₹500 SIP in UTI Nifty 50 started at age 25 is worth more at 45 than a ₹2,000 SIP started at 35.
Are index funds safe?
They carry market risk — meaning if the Nifty 50 falls 20%, your fund value falls roughly 20% too. But over any 10-year period in Indian market history, the Nifty 50 has delivered positive returns. They’re not safe in the short term; they’re reliable in the long term.
Which is better — Nifty 50 or Sensex index fund?
Both are very similar. The Nifty 50 tracks India’s top 50 companies; the Sensex tracks the top 30. Performance difference over 10 years is negligible. Pick whichever has the lower expense ratio on your platform and don’t overthink it.
Can I invest in index funds if I already have an EPF account?
Yes, they’re completely separate. Your EPF (Employee Provident Fund) contributions are mandatory and handled by your employer. Index fund investing is additional — it sits alongside your EPF, not instead of it.
Do I need a Demat account to buy index funds?
Not if you’re investing through a mutual fund platform like Kuvera or Groww. You only need a Demat account if you’re buying ETFs (Exchange Traded Funds) through a broker like Zerodha. For regular index fund SIPs, a Demat account is unnecessary.