Should you buy crude oil-sensitive paint, airlines and oil marketing companies, on the hope that the war will end quickly? With Trump in the driving seat, that’s a dicey call. Or look at defensive sectors such as IT or banking that have nothing to do with oil? They seem to be facing other headwinds such as margin pressures and AI disruption. Domestic consumption stocks have the looming El Nino threat to contend with.
If you would rather not try to decipher all this, there’s an easier route to capitalise on the market fall. Just buy passive funds. Indian fund houses now run a large roster of 677 index funds and Exchange Traded Funds (ETFs). We sifted through this varied menu, to identify six index funds you can start investing in, based on whether you are a newbie, an aggressive risk-taker or defensive investor.
New to equity
Are you a young investor looking to make a start on equity funds? A mid-life investor who missed the post-Covid rally in stocks and now want to jump in? A senior citizen who wants an equity allocation in her debt-heavy portfolio? You can make your equity debut through a Nifty100 index fund or a Nifty LargeMidcap 250 fund.
Nifty100 fund: The Nifty100 index owns the top 100 stocks in the listed space ranked by their total market capitalisation. These stocks are also the official large-cap universe for mutual funds as defined by SEBI.
Why should you buy the Nifty100 and not its more popular sibling Nifty 50? Because it has a better return record and is more diversified. Analysis of five-year rolling returns over the last 20 years (March 2006 to March 2026), shows that the Nifty 100 has slightly higher average returns than the Nifty 50 at 12.6 per cent versus 12.2 per cent over the last two decades, with a much lower probability of losses (0.05 per cent of the times against 0.11 per cent in the Nifty50). (See Table 1)
The top five stocks in the Nifty50 hog a 38 per cent weight in the portfolio (as of end-February), whereas they take up a 31 per cent weight in the Nifty100. Both indices are financials-heavy, but the Nifty100 has a finance weight of 35 per cent against the Nifty50’s 38 per cent.
The Nifty100 is also at a slightly lower valuation than Nifty50 currently, its PE correcting to 20.2 times from a peak of 25.3 times in September 2024.
Which funds: Bandhan Nifty100 Index Fund has the lowest expense ratio at 0.10 per cent and operates with a tracking difference of 0.20 per cent (difference between annualised fund and index returns). Axis Nifty 100 Index Fund comes next with 0.21 per cent expense ratio and 0.29 per cent tracking difference.
Nifty LargeMidcap 250 index fund: If you’re willing to take on higher risks for a better return, you can bypass the Nifty100 and jump straight to the Nifty LargeMidcap 250 index. This index bundles together the top 100 and next 150 stocks into a neat package with a 50 per cent weight in each segment.
This is a superior alternative to owning the Nifty100 and Nifty 150 separately, because it first divides its portfolio into equal buckets for large- and mid-caps and then allocates weights based on the free-float market-cap of each stock.
The Nifty LargeMidcap250 is also a superior alternative to the Nifty500, owing to its superior risk-reward profile. Rolling return analysis over 20 years shows that the LargeMidcap 250 has delivered an average 14.4 per cent CAGR over five-year periods, compared to the tame 12.7 per cent from the Nifty500 (not much different from Nifty100). It delivered a 31.6 per cent CAGR in its best five-year spell (against 28.8 per cent from Nifty500). (See Table 1)
It seldom delivers losses if held for five years (probability of 0.84 per cent). Its top weights are financials (31 per cent), capital goods (9 per cent) and auto (7.7 per cent). The mid-cap flavour, however, makes this a pricier choice than Nifty100. Its current PE is nearly 24, down from a peak of 32 in September 2024. If you want an uncomplicated one-fund equity portfolio also, this one fits the bill.
Which funds: Zerodha Nifty LargeMidcap 250 Fund seems to be a good bet with an expense ratio of 0.27 per cent and a tracking difference of 0.18 per cent (all mentions of Direct plans). HDFC and ICICI Pru offer LargeMidcap250 index funds at an expense ratio of 0.25 per cent, but with a tracking difference of about 0.40 per cent.
For aggressive investors
Investors who already own a portfolio may be looking to take a high-risk-high-reward bet on small-caps in this market mayhem. Rather than sifting through masses of small-cap names at short notice, you can buy a basket of small-caps through a passive fund. Snapping up one fund is also a quick way to capitalise on a bottoming market. As per the SEBI classification, all stocks in the Indian listed below the top 250 by market-cap qualify as ‘small-caps’ for mutual fund managers. However, this universe of 5,000-odd stocks features a lot of duds.
The Nifty Smallcap 250 index skims the creamy layer of this universe by restricting itself to the top 250 names below the large- and mid-cap layer.
This is a diversified index with its top sector weights in financials (24.5 per cent), healthcare (14.6 per cent) and capital goods (12.5 per cent). The top five stock holdings of MCX, Laurus Labs, Karur Vysya Bank, Delhivery and Navin Fluorine together make up less than 10 per cent weight in the portfolio.
Long-term rolling returns show that this index shot out the lights with a 40 per cent CAGR in its best five-year period in the last two decades. However, it nosedived 70 per cent in the worst year, calling for a strong stomach. While the Nifty100 or LargeMidcap250 rarely deliver capital losses if held for five years, a five-year holding period is no guarantee of gains in the Nifty Smallcap 250. It has had an 8 per cent probability of losses over five-year periods. (See Table 2)
Yes, on the face of it, the Nifty LargeMidcap250 seems to offer much better reward for risks than Nifty Smallcap 250. The small-cap index sports a lower average rolling five-year return of 13.8 per cent (versus 14.4 per cent for LargeMidcap 250) for a high probability of losses (8 per cent versus less than 1 per cent). But in its good five-year spells, it has managed returns as high as 40 per cent CAGR. It, therefore, works for aggressive investors looking for tactical bets when markets are scraping the bottom. The index PE has corrected from over 35 times at its peak in 2024 to 24 times now. (See Table 2)
A new option that has cropped up for aggressive investors is the Nifty Midsmallcap 400 index. This 400-stock index has all the constituents of the Nifty Midcap 150 index and the Smallcap 250 index tied up into one neat bundle. It is more diversified than the Smallcap 250. The splintered holdings reduce risk compared to the Nifty Smallcap 250, but dilute upside too. Right now, the Nifty Smallcap 250 is the better choice, owing to its lower valuation (PE of 24.5 versus 28 on the Midsmallcap 400).
Which fund: Funds tracking the Nifty Smallcap 250 are available at expense ratios of 0.30-0.40 per cent. But the key metric to watch is the tracking difference, which can be as high as 1.3 per cent. Motilal Oswal Nifty Smallcap 250 Index Fund is a good choice with a tracking difference of 0.52 per cent over three years and an expense ratio of 0.33 per cent.
For defensive investors
Not all investors looking to bottom-fish in the markets may be on the hunt for high risk-high-return options. The passive menu has something to offer for defensive investors, looking to shelter from market mayhem and downside, too. For investors who believe that choppy times here to stay, there are three types of passive funds that promise a smoother or safer journey.
Nifty 500 Value 50 index fund: If there’s one style of investing that never goes out of vogue, it is buying stocks cheap relative to their intrinsic value. The Nifty 500 Value 50 index selects the 50 best-scoring stocks from the Nifty 500 index based on an aggregate score made up of their Price Earnings, Price to Book, Price to Sales and Dividend yield ratios.
This index has the distinction of trouncing the Nifty100 as well as other factor indices by a mile in the last five years, with a 29.4 per cent CAGR compared to the Nifty100’s sedate 11.6 per cent. More important has been its ability to deliver gains of 26 per cent in the dicey markets of the past year, while restricting losses to 5 per cent in the past one month. (See Table 3)
Despite its chart-busting performance, its portfolio today features a modest PE of 9.7 times. Top sector weights are in finance (25.9 per cent), oil and gas (24.7 per cent) and metals (20.6 per cent). Key holdings are Tata Steel, SBI, Vedanta, ONGC and NTPC. Given that its portfolio is very distinct from most other funds mentioned here, this is a good choice not just for defensive investors, but for everyone looking to bottom-fish.
Which fund: Axis Nifty 500 Value 50 Index Fund seems to offer the lowest fee at 0.17 per cent. It is relatively new, so tracking difference is unavailable.
Nifty Dividend Opportunities 50: When there’s little visibility around growth or earnings, dividends act as an anchor to stock prices. The Nifty Dividend Opportunities 50 index selects companies with high and stable dividend yield from the listed universe. The one point on which this index scores over Nifty 500 Value 50, is on low volatility of returns (standard deviation of 14.5 per cent versus 20.6 per cent for Nifty 500 Value 50). Its five-year returns at 16.7 per cent are not a patch on the Nifty 500 Value 50 index. It has outperformed the Nifty100 though. (See Table 3).
Top sectors are financials, IT and FMCG, while the top stocks are SBI, Infosys, ITC, TCS and HUL. The index PE is at a modest 14.5 times.
Which fund: Nippon India ETF Dividend Opportunities 50 is a good passive fund proxying this index. It has an expense ratio of 0.37 per cent and tracking difference of 0.5 per cent.
Nifty 100 Low Vol 30 Index: If the daily gyrations in stock prices make your stomach churn, index funds based on the Low Vol (Volatility) factor may be just your cup of tea. This index cherry-picks the stocks with the lowest standard deviation of daily returns, from the most-liquid large-cap names in the market, offering a double layer of protection.
The volatility-killing nature of this index is evident from its standard deviation being at 11.6 per cent in the last five years, compared to 13.3 per cent for its parent Nifty 100.
The volatility of this index is at nearly half the levels of more jumpy indices such as the Nifty Smallcap 250, which clocked 19 per cent standard deviation. (See Table 3)
Given the mandate, this index tends to park in the most boring names in the market at any given point in time. In end-February, it had SBI, ICICI Bank, HDFC Bank, Hindustan Unilever and Apollo Hospitals as its top five, with a 21 per cent aggregate weight. This index can (severely) lag peers in bull markets but outperforms by holding its head above water in turbulent phases. The index has managed a 12.9 per cent CAGR in the last five years, better than the Nifty100. While its standard deviation is lower than the above defensive funds, its downside containment has not been great.
Which fund: Mirae Asset runs a Nifty 100 Low Volatility 30 ETF with an expense ratio of 0.34 per cent and tracking difference of 0.42 per cent.
The author is a Contributing Editor
Published on March 21, 2026