I would like to buy Nifty/Bank Nifty on long term investment basis (say 2-3 years) like individual stocks. Please advise various options available for long term investment of Indices.
You cannot buy the Indexes directly.
Index futures span for a 3 month period, and so you cannot buy and keep for 3 years or so.
But you can buy the Exchange Traded Funds which mimic the returns of the index.
Example NIFTYBEES mimic the behaviour of Nifty and this you can buy and keep with you as long as you want, like a normal stock share.
Likewise BANKBEES for Bank Nifty, I think.
Capital Market Route: a)ETF's tracking the index. b)Buying the equivalent Index constituents(stocks) according to their respective weightage on the index.
Derivative route:Futures traded on NSE. You need to keep rolling over every month or every quarter.
I understand, liquidity is a problem for Niftybees etc. Why the volumes are very less when the returns are good with less risk compared to individual stocks. Also, please advise if Niftybees/Bankbees are proportionate to the spot price or future price.
http://tradingqna.com/2721/is-buying-niftybees-shares-a-good-investment-for-long-term
I don’t think liquidity will be a problem, since you are targeting for 3 years or so.
The volumes are less, that doesnt mean there are no buyers at all.
You can also pledge your NIFTYBEES and trade F&O like pledging the normal stocks.
Yes NIFTYBEES will try to emulate the returns of NIFTY, so I could say proportionate.
The idea behind is your funds are invested back into NIFTY (the 50 underlying stocks, in exact proportion as NIFTY), So it will follow the same trend and returns as NIFTY.
In my personal opinion, if you invest for long term in good stocks handpicked from the entire stock pool, of which the current price is lesser/affordable and you can hold a good amount (qty) of such stock. The returns will be better compared to NIFTY.
But NIFTYBEES is a less risk venture, since Indexes are cyclic and always follow a postive trend (unless some global recession happens) 
Small recurring investments also would be good, compared to a large single investment.
P:S: I have read about NIFTYBEES in some negative connotation in this same forum. Could not find the link though. I advice you search thoroughly this forum and take advice from seniors.