📊 Invest in an Index Fund vs 💧 a Liquid Fund: Key Differences
| Feature | Index Fund | Liquid Fund |
|---|---|---|
| Type | Equity mutual fund | Debt mutual fund |
| Objective | Track a stock market index (e.g., Nifty 50) | Park money short-term with high liquidity |
| Returns | Market-linked, higher long-term potential | Stable, modest returns (~6–7% annually) |
| Risk Level | Moderate to high (market volatility) | Very low (short-term debt instruments) |
| Investment Horizon | Long-term (3+ years) | Very short-term (few days to 3 months) |
| Liquidity | Moderate (T+1 redemption) | High (T+1 or instant redemption) |
| Taxation | LTCG after 1 year @10% above ₹1L gains | STCG taxed as per slab; LTCG @20% with indexation |
| Best Use Case | Wealth creation, passive investing | Emergency fund, idle cash parking |
🏆 Best Index Funds in India (2025)
These are ideal for long-term passive investors who want to mirror market performance:
- Motilal Oswal Nifty Midcap 150 Index Fund – ~24.98% annualized return
- Motilal Oswal Nifty Smallcap 250 Index Fund – ~25.28% annualized return
- UTI Nifty Next 50 Index Fund – ~18.61% annualized return
- Nippon India Index Fund – Nifty 50 – ~14.97% annualized return
- HDFC Nifty 50 Index Fund – ~14.94% annualized return
Look for low expense ratios and low tracking error when choosing.
💼 Best Liquid Funds in India (2025)
Perfect for short-term parking with minimal risk:
- Aditya Birla Sun Life Liquid Fund
- – ~6.58% annualized return
- Edelweiss Liquid Fund – ~6.57% annualized return
- Axis Liquid Fund – ~6.56% annualized return
- PGIM India Liquid Fund – ~6.56% annualized return
- Mahindra Manulife Liquid Fund – ~6.57% annualized return
These funds invest in treasury bills, commercial paper, and certificates of deposit with maturities under 91 days.