India's index fund landscape changes dramatically when you compare 3-year, 5-year and 10-year performance charts. Smallcap and thematic indices dominate short-term returns, midcaps and equal-weight strategies take the lead in the medium term, while Nifty 50 and Nifty Next 50 emerge as the most reliable wealth creators over a decade. This story explains how cyclicity drives these shifts and why investors must match their index choice with their time horizon.

Best index funds: Smallcap, midcap and Nifty 50 compared across 3, 5 and 10-year return charts

Index Funds: Unraveling the Truth Behind Their Rise in Popularity

Index funds have witnessed exponential growth since September 2021, with folios surging 13 times over the past few years. Their popularity stems from low expenses, easy investing, and stable long-term returns. However, a closer look at 3-year, 5-year, and 10-year charts reveals a different story.

What are Index Funds?

An index fund is a mutual fund that tracks a specific market index, such as the Nifty 50, Nifty Next 50, Nifty Midcap 150, or Nifty Smallcap 250. Unlike traditional stock-picking funds, index funds follow market movements and boast low expense ratios, making them a stable long-term investment option.

3-Year Chart: Small-Cap and Mid-Cap Stocks Shine

The 3-year chart paints a picture of small-cap and mid-cap stocks dominating the market, with thematic funds also making a significant impact.

Motilal Oswal BSE Enhanced Value Index: 33.29% return
ICICI Prudential Nifty Auto Index: 28.96% return
Axix Nifty Midcap 50 Index: 25.82% return
ABSL Nifty Smallcap 50 Index: 25.45% return
Axix Nifty Smallcap 50 Index: 25.42% return

5-Year Chart: Midcaps and Equal-Weight Indices Take Center Stage

The 5-year chart sees midcaps delivering the strongest and most consistent performance, with smallcaps also remaining in the top spot. Equal-weight indices, which assign equal weightage to each stock, also emerged as top performers.

Motilal Oswal Nifty Midcap 150 Index: 25.63% return
Motilal Oswal Nifty Smallcap 250 Index: 25.29% return
Nippon India Nifty Smallcap 250 Index: 24.95% return
DSP Nifty 50 Equal Weight Index: 20.71% return
Sundaram Nifty 100 Equal Weight Index: 19.20% return

10-Year Chart: Largecaps' Simple Compounding Wins

The 10-year chart reveals that largecaps have delivered the most reliable long-term returns, with the Nifty 50 and Nifty Next 50 indices taking the lead.

LIC MF Nifty Next 50 Index: 13.95% return
ICICI Prudential Nifty Next 50 Index: 13.95% return
Bandhan Nifty 50 Index: 13.91% return
UTI Nifty 50 Index: 13.84% return
HDFC Nifty 50 Index: 13.77% return
Tata Nifty 50 Index: 13.74% return

Market Cyclicity: Why Doesn't One Index Win All the Time?

The three different timeframes convey a clear message: markets move in cycles, and each cycle has a different hero. Choosing an index based solely on recent returns can be risky.