Indian retail investors are rapidly embracing passive investing, with 68 per cent now allocating funds to index-based strategies, according to a survey by Motilal Oswal Mutual Fund (MOMF). The findings highlight a structural shift in investor behaviour as awareness and adoption of low-cost, transparent financial products deepen across India.
The survey, conducted in August–September 2025, polled over 3,000 investors and more than 120 distributors, including mutual fund agents, registered investment advisers and wealth managers. It found that the passive industry’s Assets Under Management (AUM) have surged 6.4 times in six years—from Rs 1.91 lakh crore in 2019 to Rs 12.2 lakh crore—representing a compound annual growth rate (CAGR) of 36 per cent.
Over the past two years alone, AUM has grown 1.7 times, roughly translating to a 26 per cent CAGR, signalling that passive funds have evolved from a niche category to a mainstream investment avenue.
“Passive strategies have experienced significant growth in recent years, moving from being a niche allocation in only a few portfolios to being embraced by a broader investor base,” said Pratik Oswal, Chief of Passive Business at Motilal Oswal AMC. “Awareness is no longer limited to broad-based index solutions as investors are increasingly accepting factor-based funds and innovative passive strategies.”
Growing Retail Acceptance
The survey found that 76 per cent of mutual fund investors are now aware of index funds or exchange-traded funds (ETFs), up from 61 per cent in 2023. While 68 per cent have invested in at least one passive fund this year, nearly a third remain hesitant, citing greater trust in actively managed products or lack of familiarity with passive offerings.
For those investing in passive products, cost efficiency, diversification, and simplicity were top motivators. Specifically, 54 per cent of investors cited low costs as a key factor, while 46 per cent each pointed to diversification and transparency, followed by 29 per cent who cited performance.
Investor preferences reveal that 49 per cent invest in both index funds and ETFs, 34 per cent invest only in index funds, and 16 per cent prefer ETFs. Broad-based equity exposure remains the dominant category, with 79 per cent of index fund investors and 62 per cent of ETF investors allocating there. Commodities follow closely, with 37 per cent of index fund and 61 per cent of ETF investors choosing such assets.
Distributors Strengthen Passive Push
The distributor survey reinforces this momentum, showing that 93 per cent of financial intermediaries plan to increase passive allocations by at least 5 per cent in FY25–26. Currently, around 70 per cent of their clients hold fewer than three passive funds, suggesting that passive investments still serve a satellite role in most portfolios.
Distributors view passive products as useful diversification tools, with 62 per cent citing diversification, 34 per cent low risk, and 28 per cent ease of understanding as primary reasons for recommending them. Tracking error remains the most important performance measure for 68 per cent of distributors, followed by expense ratio.
Millennials emerged as the key demographic driving growth, with 54 per cent of distributors reporting that younger investors are most inclined towards passive products.
Shift Toward Smart Beta
Smart Beta strategies are also finding traction. Momentum-based funds lead the pack at 40 per cent popularity, followed by quality (37 per cent) and value (35 per cent), reflecting growing sophistication among Indian investors.
Investor behaviour indicates increasing financial discipline and a long-term orientation. About 85 per cent of investors said they hold investments for over three years, while just 13 per cent stay invested for one to three years. Financial independence (61 per cent), retirement planning (49 per cent), and portfolio diversification (31 per cent) were the top investment objectives.
Digital adoption continues to drive engagement, with 60 per cent of investors transacting via online apps and 39 per cent through mutual fund websites. Financial websites (52 per cent) and newspapers (38 per cent) remain the most trusted information sources.
As passive products deepen their penetration, the industry’s challenge will be to sustain growth while enhancing investor education and product innovation. With younger investors driving adoption and distributors aligning portfolios accordingly, India’s passive fund landscape appears poised for steady expansion.