About 85% plan to hold passive funds for more than three years, indicating that investors are using them as long-term portfolio building tools rather than short-term trading instruments.
More than two-third of mutual fund investors in India, or nearly 68% have exposure to at least one passive fund, while 76% are aware of index funds and exchange-traded funds (ETFs), according to Motilal Oswal Mutual Fund’s Passive Funds Investors Survey 2025.
The findings show continued investor interest, backed by strong domestic fund flow and healthy three-year returns across major passive fund categories.
Increasing Passive Allocation
The online survey, conducted between August and September 2025, covered over 3,000 mutual fund investors with half from non-metros. As many as 55 percent of the respondents said they increased passive allocations last year and 72% plan to raise exposure further this fiscal. About 85% intend to hold passive funds for more than three years, indicating that investors are using them for long-term portfolio building rather than consider them as short-term trading instruments.
Increasing Pie of Passive Funds
Passive fund assets have expanded from Rs 1.91 lakh crore in 2019 to Rs 12.2 lakh crore as of August 2025, a 6.4-fold increase in six years and a compound annual growth rate of about 26% since 2023.
According to the latest AMFI data, total assets under passive funds rose 0.2% month-on-month to Rs 12.50 lakh crore in August 2025, hlped by record gold prices and fresh inflow worth Rs 11,437 crore, marking the 58th consecutive month of positive flow. Within this, other ETFs accounted for Rs 7,244 crore of inflows, followed by gold ETFs with Rs 2,190 crore and index funds with Rs 1,503 crore. Over the past one year, passive AUM has grown by 11.5% while the three-year increase stands at over 106%, led by an 83% rise in ETF assets and a 191% jump in index fund assets. Gold ETFs have nearly tripled their corpus in the same period.
Why Bet on Passive
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Cost efficiency has been a key factor for investors to opt for passive products. The mutual fund survey showed that around 54% of investors cited low expense ratios as the main motivation, followed by diversification and simplicity, at 46% each. Nearly 40% now hold balanced or major allocations in passive funds, while 57% hold between one and three schemes, reflecting focused usage of index-based strategies.
Returns for Top ETFs
Based on the three-year return data, the top-performing index and ETF schemes show distinct trends between domestic and global exposures.
Among index funds, the Motilal Oswal BSE Enhanced Value Index Fund delivered the highest three-year return of 38%, followed by the Navi US Nasdaq 100 FOF and ICICI Prudential NASDAQ 100 Index Fund, both with 34% returns. The Motilal Oswal S&P 500 Index Fund recorded 27%, while other Indian equity index funds such as the UTI Nifty 50 Index Fund and HDFC Index Fund – Nifty 50 Plan generated returns in the range of 22–24%. The average three-year return for index funds stands at approximately 23%.
Among ETFs, the leading performers include the Nippon India ETF Nifty BeES, SBI ETF Nifty 50, UTI Nifty Next 50 ETF, and ICICI Prudential Nifty 100 ETF, with returns ranging between 17% and 21%. Sectoral ETFs such as the Kotak NV20 ETF and Motilal Oswal Nifty Midcap 150 ETF also gained. The average three-year return for ETFs is around 19%.
ETFs’ Rising Popularity
Investors’ ETF participation has deepened with around 65% of passive investors now owning at least one ETF, up from 41% in 2023, supported by greater digital access, liquidity, and transparency. Interest in smart beta strategies has also increased significantly, with 61% of investors holding factor-based funds compared to just 13% two years ago. Momentum, quality, and value factors remain the most popular.
Distributors are aligning with this shift with the report stating that 7 in 10 MF distributors now include passive funds in client portfolios and 93% respondents plan to raise allocations by at least 5% in FY26. Diversification (62%) and risk mitigation are key reasons to opt for passive funds, while tracking error and expense ratio remain top evaluation criteria. Millennials lead participation, followed by Gen X investors.
Broad-based equity indices account for the largest share of passive holdings (79%) in index funds, followed by gold and silver (37%), sectoral or thematic funds (34%), and international equity (26%). In ETFs too broad-based indices lead at 62% followed by gold and silver at 61 percent. A growing number of investors use a mix of SIPs and lump-sum investments to combine steady exposure with tactical flexibility, the report added.
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