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Indian investors are favoring passive investing, with ETFs and index funds gaining popularity.
AMFI data shows that the AUM of passive funds has reached Rs. 12.11 lakh crore in May 2025. This is an increase of 25% from AUM of Rs. 9.70 lakh crore in May 2024.
Passive Investing Surges In India: The shift of Indian investors towards passive investing is perceptible, with the growing interest for ETFs like Nifty 50 and index funds, according to data from AMFI. This surge is driven by a mix of cost efficiency, regulatory changes, and growing awareness about the limitations of active fund management, say experts.
AMFI data shows that the AUM of passive funds has reached Rs. 12.11 lakh crore in May 2025. This is an increase of 25% from AUM of Rs. 9.70 lakh crore in May 2024. Also, passive funds make up 16.78% of the total MF AUM of Rs. 72.18 lakh crore. Total AUM in Nifty 50 ETFs has increased from Rs 2.78 lakh crore as of March 2024 to Rs 3.67 lakh crore as of June 2025, representing a robust growth of 32%.
Hemen Bhatia, Executive Director & CEO at Angel One Asset Management, attributes this shift to a combination of better awareness and market evolution. “There is a definite shift happening as investors understand the benefit of passive investing. The diminishing alpha of actively managed large-cap funds has only accelerated this transition,” he added.
He further explained that while the active large-cap AUM grew by 3.4x from March 2020 to May 2025, passive large-cap schemes benchmarked to indices like Nifty 50 and Sensex witnessed a 6.4x growth during the same period. “Investors are realising that individual alpha is inconsistent. Hence, many prefer to settle for market returns via Nifty 50 ETFs and index funds,” he added.
Satish Dondapati, VP & Fund Manager at Kotak Mutual Fund, also reiterated, “The demand for passive funds is increasing due to their low expense ratios, broad diversification, and more consistent long-term returns. These funds are simple, transparent, and easier for investors to understand.”
Retail Participation Growing With Digital Push
Fintech platforms and greater financial literacy are fuelling retail participation in passive instruments. Bhatia noted that as of March 2025, retail investors contributed Rs 18,000 crore to Nifty 50 index funds under Direct Plans, and Rs 5,000 crore under Regular Plans. Additionally, retail investments in Nifty 50 ETFs stood at Rs 4,000 crore.
“Many first-time investors are turning to Nifty 50 index funds and ETFs as they offer exposure to India’s top companies with lower risks,” he said, adding that fintech apps have made data and tools more accessible to the average investor.
Varun Gupta, CEO of Groww Mutual Fund, highlighted the twin forces at work. “We have seen rising awareness among retail investors, but advisors too are actively recommending passive products now as they align well with investor needs,” he said.
Devarsh Vakil, Head of Prime Research at HDFC Securities, pointed to global parallels: “In the first half of 2025, retail investors poured a record $155 billion into U.S. stocks and ETFs. India is following a similar path.”
Rising Concerns Over Index Concentration
While passive funds are gaining traction, experts caution against the risks of over-concentration in the top-weighted stocks of the Nifty 50. Vakil noted, “A market-cap-weighted index like the Nifty 50 can lead to skewed allocations towards a few heavyweight stocks. This may increase volatility, especially during sector-specific downturns.”
Bhatia, however, downplayed concerns, saying the risk is partly offset by the liquidity of large-cap stocks. “Larger companies are more liquid, which makes it easier for ETFs or index funds to replicate the index without significant disruption,” he stated.
Still, Vakil warned that rising passive inflows could reduce the tradable supply of large-cap stocks and increase market distortions around rebalancing dates.
The Road Ahead For Passive Investing In India
The consistent growth in passive fund flows indicates a maturing investor base that is more informed and focused on long-term wealth creation. With fintech platforms making investing more accessible and regulatory reforms enforcing greater transparency in fund performance measurement, passive investing is fast becoming a preferred choice for both seasoned and first-time investors.
As Mr. Bhatia aptly summed up, “The success of an active fund often sows the seeds of its own underperformance. Passive funds, on the other hand, offer consistency and clarity—traits that are increasingly valued by investors today.”
Disclaimer: The views and investment tips by experts in this News18.com report are their own and not those of the website or its management. Users are advised to check with certified experts before taking any investment decisions.
Varun Yadav is a Sub Editor at News18 Business Digital. He writes articles on markets, personal finance, technology, and more. He completed his post-graduation diploma in English Journalism from the Indian Inst…Read More
Varun Yadav is a Sub Editor at News18 Business Digital. He writes articles on markets, personal finance, technology, and more. He completed his post-graduation diploma in English Journalism from the Indian Inst… Read More
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