Can index fund SIPs build long-term wealth? Top 5 funds with up to 14% returns over 10 years

Few people have championed this more strongly than Warren Buffett, who has repeatedly urged ordinary investors — most notably in his 2013 shareholder letter — to choose low-cost index funds over stock-picking or star fund managers.

But does that advice hold the same weight in India today?

The answer is more nuanced than it was a decade ago. The cost advantage of index funds over actively managed large-cap funds has narrowed in the direct-plan universe. Yet index funds continue to attract investors in large numbers, driven by their simplicity, transparency, and increasingly competitive long-term returns.

Investors are pouring money into index funds

Index fund assets under management (AUM) stood at Rs 3.07 lakh crore at the end of March 2026, up from Rs 2.83 lakh crore a year earlier. Inflows moderated somewhat, but investors still put in Rs 11,429 crore during the January–March 2026 quarter, compared to Rs 12,932 crore in the same period of 2025.

For context, index funds are one segment of the broader passive mutual fund category — which also includes ETFs — and that category had a total AUM of Rs 13.73 lakh crore as of March 2026.

What are index funds?

Index funds aim to replicate the performance of a benchmark such as the Nifty 50, Nifty Next 50, or Nifty 100 Equal Weight Index. Unlike active funds, where managers try to outperform the market by selecting stocks, index funds simply mirror the benchmark — giving investors broad market exposure without dependence on any fund manager’s judgement.

The returns are difficult to ignore

Among highly rated index funds, some have generated annualised SIP returns of around 14% over the last decade (10-year period ending March 2026, source: Value Research; only 3-, 4- and 5-star rated funds considered).

Top-performing index funds by 10-year SIP returns

Note: The Nifty Next 50 index draws from a different universe than pure large-cap benchmarks, so comparisons should be read with that in mind.

Why the cost argument is no longer the whole story

Buffett’s case for index funds rested on a simple idea: costs matter. In the US, actively managed funds charged significantly higher fees, making it hard for managers to justify the premium. That logic still holds in principle — lower expenses mean more returns stay in investors’ hands.

But in India’s direct-plan universe, the gap has narrowed. Compare expense ratios:

Popular large-cap active funds (Direct)

While index funds remain cheaper on average, the difference is no longer dramatic — LIC MF Nifty Next 50 Index Fund at 0.50% is not far from several active large-cap funds. The stronger case for index funds today is simplicity, predictability and the elimination of manager risk — not cost alone.

What experts say

Anand Vardarajan, Chief Business Officer at Tata Asset Management, sees index fund SIPs as a natural fit for investors who want disciplined, long-term participation in India’s growth story without trying to time the market or pick winning stocks. He notes that passive funds’ share in the mutual fund industry has grown from roughly 7% in 2020 to around 17% in April 2026 (Source: AMFI), and calls SIPs particularly valuable for helping investors stay invested through volatility rather than reacting to short-term swings.

Sharwan Goyal, Fund Manager and Head of Passive, Arbitrage and Quant Strategies at UTI AMC, takes a balanced view. He considers index funds a strong core allocation for investors seeking broad market exposure at lower cost, particularly those who lack the time or inclination to evaluate and monitor active funds. But he cautions against treating them as a universal answer: active funds may add value in certain market environments, and investors with specific goals — sector exposure, factor strategies, particular market-cap segments — may benefit from combining active and passive approaches rather than relying on either alone.

Whom has passive investing attracted?

Passive mutual funds are no longer a retail-only phenomenon. As of March 2026, corporates accounted for 70% of passive fund AUM, HNIs for 21%, and retail investors for 9%. However, from a participation standpoint, retail investors dominate: they represent 93% of the 5.54 crore folios in the category.

Summing up…

Several index funds have delivered annualised returns close to 14% over the past decade while offering broad diversification and a straightforward investment approach — proof that investors do not need complexity to create wealth. For those seeking market-linked returns, disciplined SIP investing, and minimal monitoring, index funds can form a strong portfolio foundation. But they work best as part of a broader asset allocation strategy, not as the only route to long-term wealth creation.

Disclaimer: The returns mentioned in this article are historical and based on data available at the time of writing. Past performance does not guarantee future returns. Mutual fund investments are subject to market risks, and index funds can also experience periods of volatility and negative returns. Investors should not choose a fund solely based on past returns, ratings, or expense ratios. Investment decisions should be aligned with individual financial goals, risk appetite, investment horizon, and asset allocation requirements. Readers are advised to consult a qualified financial advisor before making any investment decisions. The article is intended purely for informational and educational purposes and should not be construed as investment advice or a recommendation to buy, sell, or hold any mutual fund scheme. 

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