Indian Retail Investors Increasingly Embracing Passive Funds
Mumbai, October 6, 2025 – A recent survey by Motilal Oswal Mutual Fund (MOMF) reveals a significant shift in investment preferences among Indian retail investors, with 68% now allocating a portion of their portfolio to passive funds. This marks a notable increase from approximately 61% in 2023, highlighting the growing acceptance and adoption of passive investment strategies in India.
The third edition of the Passive Survey 2025, conducted between August and September 2025, gathered insights from over 3,000 investors and 120 distributors across India, including mutual fund distributors, Registered Investment Advisors (RIAs), and wealth managers. The survey underscores the increasing mainstream status of passive funds within the Indian investment landscape.
Passive funds, including index funds and Exchange Traded Funds (ETFs), are investment vehicles that aim to replicate the performance of a specific market index, offering a diversified and low-cost approach to investing.
The survey also found that 76% of the surveyed mutual fund investors are aware of Index Funds or ETFs in 2025. Despite the increasing popularity of passive funds, about one-third of investors remain hesitant, expressing greater confidence in active fund management or citing a lack of familiarity with passive investment products.
AUM Growth and Key Drivers
India's passive investment landscape has experienced substantial growth. The Assets Under Management (AUM) in the passive industry reached ₹12.2 lakh crore in 2025, a 6.4-fold surge in six years from ₹1.91 lakh crore in 2019. This translates to a compound annual growth rate (CAGR) of 36%. In just over two years since March 2023, the AUM has grown 1.7 times, reflecting a CAGR of approximately 26% and highlighting the accelerating pace of adoption.
Several factors contribute to the growing appeal of passive funds among Indian retail investors. The survey identified the following key drivers: * Low Costs: 54% of investors cited low expense ratios as a primary reason for choosing passive funds. * Diversification: 46% of investors were attracted to the diversification benefits offered by passive funds. * Simplicity and Transparency: 46% of investors valued the straightforward nature and transparent investment strategies of passive funds. * Performance: 29% of investors considered the performance of passive funds as a significant factor in their investment decisions.
Distributor Perspectives
The survey also captured the perspectives of distributors, revealing that 93% of surveyed distributors possess an understanding of passive funds, with approximately 46% demonstrating in-depth knowledge. Furthermore, 70% of distributors include passive funds in their clients' portfolios. A significant majority of distributors (93%) intend to increase their allocation to passive funds by at least 5% in the fiscal year 2025-26. Currently, 70% of their clients hold fewer than three passive funds, indicating that passive exposure often serves a supplementary role within their overall investment portfolios. Distributors incorporate passive funds into their product offerings primarily for diversification (62%), low risk (34%), and ease of understanding (28%).
Product Preferences and Investment Objectives
Among passive fund investors, more than half (57%) hold between one and three passive funds, 26% hold three to five, and approximately 17% own more than five funds. In terms of specific product preferences, 49% invest in both index funds and ETFs, 34% invest exclusively in index funds, and 16% invest solely in ETFs. Broad-based equity exposure is the most common allocation, with 79% of index fund investors and 62% of ETF investors allocating to this category. Commodities are the next most preferred asset class (37% for index funds, 61% for ETFs), followed by sectoral or thematic funds (34% for index funds, 33% for ETFs) and international equity (26% and 32% respectively).
For Indian investors, achieving financial independence is the primary investment objective, followed by retirement planning and portfolio diversification.
