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Over the past few years, India’s investment landscape has witnessed a steady yet profound transformation. As of June 2025, over 12 lakh crores of investor AUM is in passive funds, according to the latest AMFI reports. This represents a 3% month-on-month increase and accounts for about 17% of the overall mutual fund industry’s AUM. This significant milestone signals more than just growth—it marks a fundamental shift in how Indian investors approach wealth creation.
Passive investment strategies, once considered niche or supplementary, are steadily becoming a core component of investor portfolios. Their appeal lies in their simplicity, transparency, and cost-effectiveness, which resonate strongly with a new generation of investors.
The evolution
The journey of passive investing in India has been gradual and marked by several milestones. In the early 2010s, ETFs and index funds were relatively unknown among retail investors. Limited product availability, predominantly only Nifty 50 and BSE Sensex based, lack of investor education about passive investing, and a general preference for traditional active funds meant that passive strategies remained on the sidelines. The government’s move to disinvest via ETFs, along with EPFO’s landmark decision to invest in Equity ETFs, increased the familiarity and focus on passive investing. The regulator, SEBI, also evolved guidelines that made passive fund investing and management simpler.
As a result, mutual fund companies now offer a broad selection of passive funds. Simultaneously, the rise of fintech platforms democratised access to these products. Investors could now easily buy and track ETFs and index funds through apps, making investing more accessible and user-friendly. This confluence of regulatory support, institutional participation, asset management industry’s efforts to educate investors about passive investing and technological innovation propelled passive funds from niche offerings to mainstream investment choices.
What’s driving the surge?
Besides the above, one of the most compelling rationales for passive funds is the cost advantage that they offer. Expense ratios for ETFs and index funds are typically much lower than many other investment options, making them attractive to cost-conscious investors..
Investor maturity is another important factor. Over time, Indian investors have become more aware of the importance of diversification, long-term wealth creation, and the pitfalls of frequent trading or market timing and the compounding impact that costs have on the final return on their investments. Passive funds, by design, provide these benefits, thus earning their place as a core part of investors’ portfolios. broad market exposure, reducing the risk of concentrated bets and offering steady participation in market growth.
The digital revolution has also played a critical role. Fintech companies and online platforms have simplified the investment process, enabling “sachet investing” — small, regular investments through systematic investment plans (SIPs) in passive funds. This has lowered the entry barrier for first-time investors and encouraged disciplined investing habits. Moreover, the rise of various distribution models has expanded the reach of passive funds beyond metros and urban centers, bringing them closer to tier 2 and tier 3 cities. This widening investor base has fuelled demand and contributed to the impressive growth numbers.
Expanding the passive universe
The passive investment space is no longer limited to broad market indices. Innovations have introduced smart beta funds that track indices weighted by factors such as low volatility, quality, value, or momentum, offering a nuanced approach to passive investing. International ETFs allow Indian investors to diversify globally, gaining exposure to foreign markets and currencies without the complexities of direct overseas investing. Commodity (gold and silver) based ETFs and FoFs has also stated gaining investors’ attention as have thematic index funds with focus on themes like healthcare, consumption etc.
What this means for the industry
The growing dominance of passive funds is reshaping the asset management industry in India. AMCs are responding by expanding their passive product offerings and investing in investor education to build awareness about the benefits and appropriate use of passive strategies. Advisors and distributors are also adapting, often blending passive funds with other investment approaches to create balanced portfolios that meet diverse client needs. The emphasis is shifting toward transparency, cost efficiency, and long-term wealth creation and working in the interest of the investor, putting her interest above everything else.
From momentum to maturity
Passive investing in India is no fleeting trend but a strategic, structural shift. The steady momentum behind ETFs and index funds signals a new era where these strategies form the backbone of many investment portfolios. As the market continues to mature, passive investing is set to deepen its footprint, helping investors build wealth through simple, transparent, and cost-effective means. This evolving landscape offers opportunities for investors to participate in markets with greater ease and confidence.
To further accelerate this pace of growth, any policy imperative that further encourages investments in passive funds, by way of tax breaks (similar to ELSS schemes), would go a long way in further changing the character of the average Indian’s savings from a income generating fixed income portfolio to a wealth generating passive equity funds portfolio.
(The writer is Head – Institutional Business & Passives, Axis AMC)