Passive funds gain ground as Indian investors embrace low-cost strategies amid market volatility
Passive investing is carving out an increasingly larger space in India’s mutual fund industry, underscoring a shift in investor preference toward simple, cost-effective strategies. According to Franklin Templeton India Mutual Fund, assets under management (AUM) in passive funds touched Rs 12.19 lakh crore in August 2025, up from Rs 10.96 lakh crore a year earlier—an 11% year-on-year rise.
The share of passive AUM in the overall industry has steadily grown from 11% in August 2021 to 16% in August 2025, reflecting growing acceptance of index-linked products. Investor participation has surged as well, with passive fund folios multiplying 17 times in just the past five years.
What are passive funds?
Passive investing is a long-term, buy-and-hold strategy where investors seek to mirror the performance of a market index rather than beat it. Products such as index funds and exchange-traded funds (ETFs) replicate benchmarks like the Nifty 50, Nifty Midcap 150, or Nifty Total Market Index.
This approach eliminates the risks of fund manager bias, stock-picking errors, or poor market timing. By providing broad diversification at lower costs and fewer trading expenses, passive funds have become a preferred entry point for new investors and a core allocation for seasoned participants.
The rise of digital platforms and mobile-first investing has further democratised access, enabling a wider section of the population to participate in equity markets. Experts note that passive funds offer a reliable, efficient way to benefit from India’s structural growth without frequent portfolio churn.
Equity flows remain robust
The surge in passive funds coincides with strong momentum in equity inflows. Equity-oriented schemes recorded positive net sales for 54 consecutive months, with inflows of Rs 42,665 crore in August 2025 alone.
Investor participation has reached record levels. The total investor base climbed to 5.64 crore in August, with nearly 4.9 lakh new investors added in the month. Over the past year, the industry welcomed 73 lakh new investors, highlighting retail investors’ growing comfort with market-linked products.
SIPs’ role
Systematic Investment Plans (SIPs) remain the backbone of India’s retail investing wave. The average SIP ticket size rose to Rs 2,947 in August 2025, up from Rs 2,564 in December 2024. Meanwhile, monthly SIP flows touched Rs 28,265 crore, nearly doubling in under three years.
Analysts suggest that SIPs into passive products are becoming increasingly common, as investors prefer disciplined, low-cost exposure to indices rather than relying on actively managed strategies.
Domestic flows outshine FPIs
Another defining trend is the dominance of domestic inflows. Over the 12 months to August 2025, domestic institutional investors (DIIs) pumped in Rs 7.3 lakh crore into Indian markets, sharply contrasting with net outflows of Rs 3.8 lakh crore from foreign portfolio investors (FPIs).
Industry watchers say this domestic strength is helping cushion volatility from global shocks, while the growing base of passive investors ensures that market participation remains broad and sustainable.
With passive funds steadily gaining ground, industry experts expect their share of mutual fund AUM to rise further in the coming years. For investors seeking low-cost, transparent, and diversified exposure, passive investing offers a disciplined pathway to participate in India’s growth story—quietly compounding wealth while avoiding the pitfalls of frequent market timing.