Passive funds becoming mainstream in India, AUM stands at Rs 12.2 trillion: Motilal Oswal

A recent investor survey by Motilal Oswal Mutual Fund highlighted that the passive funds are becoming mainstream in India with 76% of surveyed mutual fund investors are aware of Index Funds or ETFs in 2025.

It further mentioned that 68% investors have invested in at least one passive fund in 2025, up from 61% adoption in 2023. However, even with this adoption growth, one-third of investors remain outside, citing higher confidence in active funds or unfamiliarity with passive products.

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The passive industry Assets Under Management (AUM) stood at Rs 12.2 lakh crores, a 6.4-fold increase in six years (36% CAGR), from Rs 1.91 lakh crores in 2019. In just over two years since March 2023, AUM has grown 1.7 times (~26% CAGR), underscoring the accelerating adoption, the report added.

Investors cited low costs (54%), diversification (46%), simplicity and transparency (46%), and performance (29%) as key factors when selecting passive funds.

The distributor survey reflects similar traction with 93% of surveyed distributors understanding passive funds of which ~46% demonstrate deep knowledge and ~70% include them in their clients’ portfolios.

Most distributors (93%) plan to further increase passive allocation by at least 5% in FY 25-26. At present, 70% of their clients hold fewer than three passive funds, indicating that passive exposure plays a satellite role in portfolios.

For Indian investors, the primary objective of investing is financial independence (61%), followed by retirement planning (49%) and portfolio diversification (31%). A strong long-term orientation is evident, with 85% of investors holding their investments for more than three years, while only 13% stay invested for one to three years and a mere 2% for less than a year.

In terms of investment style, 57% prefer a combination of SIPs and lump sums, compared to 26% rely solely only on SIPs and 17% prefer lumpsum investing.

Financial websites remain the primary source of information for 52% of investors, followed by newspapers (38%), social media (29%) and TV (18%).

Digital modes also dominate how investors transact, with 60% preferring online apps and 39% mutual fund websites, while financial advisors (15%) and banking partners (5%).

Among passive investors, more than half (57%) currently hold one to three passive funds, 26% hold three to five, and about 17% own more than five funds.

In terms of product preferences, 49% invest in both index funds and ETFs, 34% only in index funds, and 16% only in ETFs. Broad-based equity is the anchor exposure, 79% of index fund investors and 62% of ETF investors allocate here.

Commodities are the next preference (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).