Matt Roth added 14 points for Indiana (12-0), Cody Zeller had 13 and Watford led all players with 10 rebounds.
The Hoosiers, who shot almost 41 percent from three-point range, are off to their best start to a season since the 1975-76 team went 32-0 on the way to winning the national title.
Chase Plummer, Ryan Cook and Quentin Jones had 10 points apiece to lead UMBC (1-10).
The Retrievers have lost three games in a row since their only win of the season December 10 against Towson, the same day Indiana knocked off No. 1 Kentucky with a three-pointer at the buzzer.