How to invest in an index fund via Coin

From WebNotes, a public knowledge base. Last updated 12 May 2026. Reading time ~10 min. Level: Beginner.

Key facts

Platform	coin.zerodha.com or Coin mobile app
Fund type	Open-ended index fund replicating a market index (e.g., Nifty 50, Nifty Next 50, Sensex)
Key metric	Tracking error: annualised standard deviation of daily return difference vs. benchmark
Expense ratio	Typically 0.05%–0.20% for large-cap index funds; direct plans lower than regular
Minimum investment	Varies by AMC; commonly Rs 100–Rs 500

An index fund is an open-ended mutual fund scheme that passively replicates the composition and weightings of a market index, such as the Nifty 50, Nifty Next 50, Sensex, or Nifty Midcap 150. The fund manager’s objective is not to outperform the index but to minimise the difference between the fund’s returns and the index’s returns (tracking error). Index funds are low-cost, transparent, and tax-efficient relative to actively managed funds.

Zerodha Coin offers direct plans of index funds from all major AMCs, making them accessible at the lowest available expense ratios without distributor commission.

Prerequisites

An active Zerodha trading and demat account with complete KYC.
TOTP authenticator for Zerodha two-factor login.
UPI app or net banking access for payment.

Index funds: regulatory classification

SEBI classifies index funds under SEBI (Mutual Funds) Regulations, 1996 as open-ended equity schemes. SEBI Circular SEBI/HO/IMD/DF3/CIR/P/2017/114 (October 2017) defines index funds as schemes with a minimum 95% investment in the securities of a particular index, benchmarked to that index and declared in the SID.

SEBI requires index funds to disclose tracking error on a monthly basis in the fund’s factsheet. SEBI Circular SEBI/HO/IMD/DF3/CIR/P/2021/573 (May 2021) requires AMCs to take corrective action if tracking error exceeds prescribed limits.

Index fund vs. ETF on Coin

Both index funds and Exchange Traded Funds (ETFs) track market indices passively. The key practical differences for Coin investors:

Feature	Index Fund	ETF
Purchase	NAV-based via Coin (next cut-off NAV)	Needs demat + Kite/broker; real-time price on exchange
Minimum investment	Fund’s stated minimum (e.g., Rs 100)	One unit price (e.g., Nifty BeES unit ~Rs 200–250)
SIP support	Yes, via Coin	Not directly via SIP; requires manual order
Liquidity	T+3 redemption through AMC	Intraday on NSE/BSE
Expense ratio	Slightly higher than ETF	Slightly lower
Tracking error	Slightly higher	Slightly lower

For regular SIP investors who do not trade intraday, index funds on Coin are generally more convenient. For large lump-sum investments where intraday pricing matters, ETFs (purchased via Kite) may be preferable.

Choosing an index to invest in

Common indices available through index funds on Coin:

Nifty 50: Top 50 large-cap companies by market capitalisation on NSE. The most liquid and widely tracked Indian equity index.
Sensex (BSE 30): Top 30 large-cap companies on BSE. High overlap with Nifty 50 but BSE-centric.
Nifty Next 50: Companies ranked 51 to 100 by market capitalisation. Higher growth potential and higher volatility than Nifty 50.
Nifty Midcap 150: Top 150 midcap companies. Higher long-term return potential with significantly higher volatility.
Nifty 500: Combines Nifty 50 + Nifty Next 50 + Nifty Midcap 150 for broad market exposure.
Nifty Smallcap 250: Small-cap segment; highest long-term return potential with highest volatility.
Nifty Debt Indices: Debt index funds tracking G-Sec or corporate bond indices are available for fixed-income passive exposure.

For most beginner investors, a Nifty 50 or Nifty 500 index fund is a starting point before branching into midcap or smallcap index funds.

Step-by-step procedure

Step 1: Log in to Coin

Navigate to coin.zerodha.com or open the Coin mobile app. Enter your Zerodha client ID, password, and TOTP.

Step 2: Search for index funds

Type “Nifty 50 index” or “index fund” in the Coin search bar. The results show all index funds matching the search. You can also navigate to Explore > Categories > Index Funds to browse all index funds by AMC.

Step 3: Compare tracking error and expense ratio

On the fund list or individual fund detail pages, the most important metrics for index fund selection are:

Tracking error (TE): The annualised standard deviation of the daily difference between the fund’s returns and the benchmark index’s returns. A lower TE means the fund tracks the index more closely. For a large Nifty 50 index fund, a tracking error below 0.10% is excellent; up to 0.30% is acceptable. Funds with TE above 0.50% are significantly underperforming in replication.

Expense ratio (TER): Direct plan index funds for large-cap indices have TERs ranging from 0.05% to 0.20% per annum. A lower TER directly improves returns.

AUM: Larger AUM means better portfolio management capacity and typically lower tracking error due to economies of scale.

When two funds track the same index and have similar AUM, choose the one with the lower tracking error and lower TER. The difference in tracking error is more important than the difference in TER because tracking error compounds over time.

Step 4: Open the selected fund’s detail page

Click on the chosen fund to view its full detail page: portfolio composition, top-10 holdings (which should match the index composition), benchmark, fund manager (typically described as “passive management”), and historical returns vs. the benchmark.

Step 5: Initiate a lump-sum or SIP investment

Lump-sum: Click Invest. Enter the investment amount (minimum typically Rs 100 to Rs 500 for most index funds). Click Invest. Complete UPI or net banking payment.

The NAV applicable is the same-day NAV if payment is received before 3 PM IST (equity fund cut-off rule), and the next business day’s NAV if after 3 PM IST.

SIP: Click SIP. Enter the monthly instalment amount and set the SIP date. Register a UPI autopay or NACH mandate. See How to start an SIP on Coin for the complete SIP setup procedure.

An SIP in an index fund provides rupee-cost averaging over the index’s volatility cycle.

Step 6: Verify purchase

After T+1 to T+2 settlement, the index fund units appear in Portfolio > Holdings in Coin. The Holdings page shows units held, current NAV, invested amount, and unrealised gain/loss.

Step 7: Monitor tracking error periodically

Unlike actively managed funds where you track the fund manager’s performance, index fund monitoring focuses on:

Tracking error: Check the fund’s monthly factsheet (available on the AMC’s website) for the current tracking error. If the tracking error has risen significantly compared to competing funds, consider switching to the competing fund tracking the same index.
Expense ratio changes: SEBI allows AMCs to revise TER within permitted limits. Monitor for TER increases.
Index composition changes: The underlying index (e.g., Nifty 50) periodically adds and removes constituents. Index funds automatically rebalance; you do not need to take any action.

Tax treatment of index fund gains

Index funds are equity-oriented funds (more than 65% in equities). Capital gains taxation per Finance Act 2024 (effective 23 July 2024):

STCG (holding under 12 months): Taxed at 20%.
LTCG (holding 12 months or more): Taxed at 12.5% on gains exceeding Rs 1.25 lakh per financial year. No indexation benefit.

Securities Transaction Tax (STT) at 0.001% applies on redemptions from equity mutual funds.

See capital gains tax in India for the full framework.

What can go wrong

High tracking error fund selected: If you prioritise recent return performance over tracking error, you may select a fund with a high tracking error. A fund with a 0.5% tracking error underperforms the index by that much on average, defeating the purpose of passive investing.

Investing in a regular plan: All funds on Coin are direct plans, but verify that the fund name includes “Direct” to confirm you are not in a regular plan higher TER.

NAV cut-off missed: Like all equity funds, index fund purchases after 3 PM IST receive the next business day’s NAV.

Confusing index fund with ETF: ETFs tracking the same index require different management (purchased through Kite, not Coin SIP).

References

SEBI (Mutual Funds) Regulations, 1996, as amended.
SEBI Circular SEBI/HO/IMD/DF3/CIR/P/2017/114 dated 6 October 2017 – Categorisation and Rationalisation of Mutual Fund Schemes (Index Fund definition).
SEBI Circular SEBI/HO/IMD/DF3/CIR/P/2021/573 dated 5 June 2021 – Tracking difference and tracking error disclosure.
Finance Act 2024 – Revised LTCG/STCG rates for equity mutual funds.
AMFI Guidelines on index fund reporting.
NSE Indices (Nifty 50, Nifty Next 50 methodology documents).
Zerodha Coin support documentation (support.zerodha.com).

Reviewed and published by

WebNotes Editorial Team

The WebNotes Editorial Team covers Indian capital markets, payments infrastructure and retail investor procedures. Every article is fact-checked against primary sources, principally SEBI circulars and master directions, NPCI specifications and the official support documentation published by the intermediary in question. Drafts go through a second-pair-of-eyes review and a separate compliance read before publication, and revisions are tracked against the SEBI and NPCI rule changes referenced in the methodology section.

Last reviewed: 12 May 2026
Conflicts of interest: WebNotes is independent. No relationship with any broker, registrar or bank named in this article.