To start investing in index funds in India, you make five decisions, and only two of them are hard. Pick the index you want to own, compare the funds that track it on cost and tracking difference, choose the direct plan, complete KYC once, and start an SIP or a lump sum. You do not need a demat account. The portfolio itself is decided for you by the index; what you are really choosing is the index and the price.
That second choice is bigger than it looks. In nyvo's fund data, the 23 direct-plan Nifty 50 index funds all own the same 50 companies, yet their expense ratios run from 0.10% to 0.88% a year (as of 31 Aug 2026).
Starting an index fund, in five steps
The route
- 1. Choose the indexwhat you want to own
- 2. Compare the fundssame index: cost and tracking
- 3. Pick the direct planno distributor commission
- 4. KYC, oncevalid across fund houses
- 5. StartSIP or lump sum, no demat
What an index fund is
An index fund is a mutual fund that copies an index instead of trying to beat it. If the index holds 50 companies in set proportions, the fund holds the same 50 in the same proportions, and its return follows the index's, minus its costs. There is no star manager making calls, which is the point: most active large-cap funds have not beaten their index after fees over long periods, as our index vs active funds guide sets out.
Step 1: choose the index
This is the decision that shapes your returns, so make it deliberately. A large-company index such as the Nifty 50 or the Sensex holds India's biggest listed businesses. The Nifty Next 50 holds the next tier down. Broader indices such as the Nifty 500 spread across large, mid and small companies, and dedicated mid- and small-cap indices swing harder in both directions.
The index sets the risk, not the fund. Two funds tracking the same index will rise and fall together; two funds tracking different indices can behave very differently in the same year. Decide what you want to own and for how long before you look at a single fund.
Step 2: compare the funds that track it
Once the index is fixed, the funds following it are close substitutes, so compare them on what actually differs:
- Expense ratio: the yearly cost, taken out of the fund every day. Lower is better, all else equal.
- Tracking difference: how far the fund's return has fallen short of the index's over time. It captures costs plus the small frictions of copying an index, and it is the truest measure of whether a fund does its one job.
Here is what the price difference alone does to the same monthly investment.
Same index, different price
₹10k a month for 20 years, every fund earning the same 12% a year before costs. Only the expense ratio changes. Between the cheapest and the costliest fund tracking the very same index, the gap is ₹8.14 L.
- Cheapest Nifty 50 index fund · 0.10% a year₹91 L
- Typical Nifty 50 index fund (median) · 0.25% a year₹89 L
- Costliest Nifty 50 index fund · 0.88% a year₹83 L
- Typical active large-cap fund (median) · 1.08% a year₹81 L
The typical Nifty 50 index fund charges 0.25% a year; the typical active large-cap fund charges 1.08%. That gap has to be earned back by the active manager every single year before you are even level.
Step 3: pick the direct plan
Every fund comes in two versions: a regular plan, which pays a commission to whoever sold it to you, and a direct plan, which does not. Same fund, same portfolio, lower cost in direct. For a product whose whole case is low cost, the regular plan defeats the purpose. The direct vs regular guide shows the gap over time.
Step 4: complete KYC once
You need a PAN, Aadhaar-linked identity and address proof, and a bank account in your name. KYC is done once, through any fund house, registrar or KYC agency, and then works across all mutual funds.
Step 5: start, and leave it alone
You can invest through the fund house's own website or app, through MF Central (the platform run by the two registrars, CAMS and KFintech), or through an investment app. Choose an SIP to invest a fixed amount every month, or a lump sum if you have one; our SIP vs lump sum guide looks at the trade-off. The units land in a folio in your name, with no demat account involved.
Then the hardest part: do very little. An index fund will fall when the market falls, by design. The plan only works if it survives those years untouched.
Related nyvo guides
- Index vs Active Funds: The 2026 Indian Reality – the evidence on why index funds are hard to beat in large caps.
- What is a Demat Account, and Do You Need One? – why an index fund needs none, and an ETF does.
- Direct vs Regular Mutual Funds – the commission hidden in the regular plan.
An index fund is the rare investment where doing less is the skill. Choose the index carefully, pay as little as you can to own it, and give it the years it needs.
