Riding the index fund wave: ICICI and Groww launch cost-effective NFOs for Indian investors

India’s mutual fund industry is witnessing a fresh wave of passive investment offerings as two leading fund houses—ICICI Prudential Mutual Fund and Groww Mutual Fund—have announced New Fund Offers (NFOs) aimed at delivering low-cost access to key sectors and benchmark indices.

ICICI Prudential Mutual Fund has launched the ICICI Prudential Nifty Private Bank Index Fund, an open-ended index scheme designed to mirror the performance of the Nifty Private Bank Total Return Index (TRI). The NFO window for this scheme is open from July 1 to July 14, 2025.

The fund aims to provide investors with cost-efficient, rule-based exposure to India’s private banking sector. This segment has emerged as a significant pillar of the country’s financial landscape. The scheme will passively invest in a basket of the top 10 private sector banks selected from the Nifty 500 based on free-float market capitalization. Each constituent’s weight is capped to ensure diversification within the portfolio.

With no exit load and a minimum investment requirement of ₹1,000, the scheme accommodates both lump-sum and systematic investment options such as SIPs and STPs. Importantly, investors without demat accounts can also participate, widening the fund’s accessibility.

Highlighting the rationale behind this sector-focused launch, ICICI Prudential AMC noted that private sector banks have steadily strengthened their market position over the past two decades. From holding a modest 13% share of India’s loan market in FY2005, private banks have expanded their presence to 36% by FY2025. Similarly, their share of deposits has surged from 11% to 32% during the same period.

“Private banks have demonstrated consistent strength in profitability, asset quality, and capitalisation, making them a potential long-term investment option,” said Abhijit Shah, Chief Marketing and Digital Business Officer at ICICI Prudential AMC.

The performance metrics further underline the sector’s appeal. In FY2025, private banks contributed 37% of the Nifty 50’s total profits despite accounting for only 28% of the index’s market capitalization. Over a three-year period, the Nifty Private Bank Index has delivered a compound annual growth rate (CAGR) of 19.7%, outpacing the Nifty 50 TRI’s 18.5% CAGR. In terms of valuations, private banks currently trade at a P/E ratio of 17.6 and a P/B ratio of 2.4, which remain lower than the Nifty 50’s P/E of 22.3 and P/B of 3.6.

The ICICI Prudential Nifty Private Bank Index Fund will be jointly managed by Nishit Patel and Ashwini Shinde.

Meanwhile, Groww Mutual Fund has announced the launch of two passive investment products—the Groww Nifty 50 ETF and the Groww Nifty 50 Index Fund. The NFO for both schemes will open on July 2, 2025, and close on July 16, 2025.

Both funds aim to track the Nifty 50 Total Return Index (TRI), offering investors low-cost exposure to India’s top 50 companies spanning diverse sectors, including financial services, IT, oil and gas, telecom, and FMCG.

The Groww Nifty 50 ETF is an exchange-traded fund providing real-time trading opportunities on stock exchanges, ensuring liquidity and transparency. For investors preferring traditional mutual fund structures, the Groww Nifty 50 Index Fund offers the same exposure through lump-sum or SIP investments.

Data from the National Stock Exchange highlights the appeal of the Nifty 50 index, which has delivered a five-year CAGR of 21.13% and a ten-year CAGR of 13.11% as of May 31, 2025. Rolling return analyses show that the index has generated positive returns in over 75% of all seven-year monthly holding periods over the past decade. A hypothetical Rs 10,000 monthly SIP over 15 years would have grown to ₹54.8 lakh by May 2025.

The top 10 companies in the Nifty 50—including HDFC Bank, ICICI Bank, Reliance Industries, Infosys, and TCS—account for over 56% of the index weight, reflecting strong fundamentals, profitability, and resilience across market cycles.

Both Groww schemes will be jointly managed by Nikhil Satam, Aakash Chauhan, and Shashi Kumar. The minimum investment amount for each fund is Rs 500.

Groww MF also incorporates its proprietary SPEARTech technology to minimize tracking error via automated high-frequency rebalancing, ensuring tight alignment with index methodologies.

With these new launches, both fund houses aim to provide investors with simplified and cost-effective ways to participate in India’s long-term growth story. Investors are advised to review the respective Scheme Information Documents and consult their financial advisors before investing.