Mutual funds with a passive investing strategy are seeing increased popularity, accounting for 17% of the total Assets Under Management (AUM), according to a report by Motilal Oswal

Mutual funds with a passive investing strategy are seeing increased popularity, accounting for 17% of the total Assets Under Management (AUM), according to a report by Motilal Oswal

The Indian mutual fund industry has witnessed a significant surge in the past decade, with assets under management (AUM) reaching an impressive Rs 74.40 lakh crore by the end of June 2025. Among the key drivers of this growth is the rise of passive mutual funds, which now account for approximately 17% of the industry's total AUM.

In the quarter ending June 2025, equities contributed Rs 1.33 lakh crore, and passive funds played a significant role, attracting around Rs 36,000 crore in net inflows. This marks a notable shift in portfolio allocation, as passive funds continue to gain market share, especially in equity broad-based categories where inflows have notably increased.

Several factors are driving this trend. Passive funds, known for their lower expense ratios, are cost-efficient investment vehicles that appeal to cost-conscious investors. Their transparency and benchmark alignment also build investor confidence, as their performance is more predictable.

The rise in retail investor participation and structural reforms in the mutual fund industry have also contributed to passive fund popularity. There is a measured return to debt in the industry, with the debt segment attracting Rs 2.39 lakh crore in net inflows in the same quarter, reversing the previous quarter's outflows.

Broad-based funds captured 64% of total equity flows, with 55% from active funds and a notable 106% from passives. Flexi Cap was the leading active broad-based fund, with Rs 15,800 crore in net inflows, followed by Small Cap and Mid Cap with Rs 12,000 crore and Rs 10,800 crore in net inflows, respectively.

Within equities, broad-based funds emerged as the dominant category, garnering Rs 86,000 crore in net inflows. Large Cap funds remained the most allocated segment in the passive space, reflecting investors' preference for cost-effective, transparent investment vehicles aligned with market benchmarks.

Pratik Oswal, Head of Passive Business at Motilal Oswal Asset Management Company Ltd (MOAMC), stated that the quarter reflects a notable shift in portfolio allocation. The increasing traction seen in passive investing is particularly encouraging, as it signifies a structural shift among Indian investors toward embracing diversified investment strategies that include both active and passive approaches.

Commodities added Rs 9,000 crore in the quarter ending June 2025, further diversifying the mutual fund industry's investment options. The total estimated net inflows in the quarter ending June 2025 were Rs 3.98 lakh crore, with the net inflows in the June quarter being led largely by broad-based and large-cap index funds.

In conclusion, the growth and popularity of passive mutual funds in India reflect investors’ preference for cost-effective, transparent investment vehicles aligned with market benchmarks, amid an expanding and increasingly mature mutual fund market. This trend is expected to continue as more investors seek out low-cost, transparent, and predictable investment options.

[1] AMFI & ACE Mutual Fund data [2] Motilal Oswal Mutual Fund study report [3] Various industry reports and news articles

1. The surge in the mutual fund industry's total assets under management (AUM) can be partially attributed to the rise of passive mutual funds, which have gained popularity due to their lower expense ratios and transparency.
2. In the quarter ending June 2025, passive funds were a significant contributor to the net inflows in equities, attracting around Rs 36,000 crore, making them an increasingly preferred choice for investors.
3. The increasing traction in passive investing signifies a structural shift among Indian investors towards diversified investment strategies that combine active and passive approaches, as seen in the dominance of broad-based and large-cap index funds in net inflows.
4. As the mutual fund market expands and matures, investors are likely to continue seeking low-cost, transparent, and predictable investment options in personal-finance, with passive mutual funds playing a key role in this trend.

Read also: