How Passive Investing Is Changing the Way India Builds Wealth

For decades, wealth creation in India has been closely associated with stock-picking skills and star fund managers. However, a quieter shift is underway. An increasing number of investors are choosing low-cost, rules-based strategies that simply track the market - signalling a structural change in how Indians invest and build long-term wealth through passive investing.

Passive investing is a strategy where an investor does not try to beat the market returns but tries to replicate them by simply aping a benchmark index or a specific asset such as gold, as opposed to ‘active investing,’ wherein a fund manager/ investor tries to generate ‘alpha’ by actively managing the portfolio. Since an actively managed fund promises higher returns, it also charges a higher management fee compared to a passive fund.

Conceptually, actively managed strategies may seem more appealing due to their promise of higher returns, however, passive funds have witnessed a steady increase in AUM.

“Passive fund AUM is up almost 7 times from March 2020 to March 2025. Passive inflows crossed Rs 19,000 crore in September 2025, aided by investors wanting to invest in gold and silver. Over 68 per cent of investors have invested in at least one passive fund and 76 per cent are aware of index funds or ETFs,” says Manoj Trivedi, Director of Strategy at Maxiom Wealth.

Passive investment in India can be seen to mirror the trend in the US, where passive investing has overtaken active strategies, as active fund managers struggle to consistently beat the benchmark indices, making investors question the higher fund management fees.

Several factors have contributed to the increase in passive investing. Firstly, investors are more aware and frequently compare performance of various funds.

“This has been aided by SEBI's scheme rationalisation and standardisation of benchmarks, that has improved transparency and trust in passive products. The low management fee is also an incentive for cost-conscious investors. Additionally, understanding the way passive funds operate is easy, tracking their returns is even easier,” says Trivedi.

Another factor influencing the growth of passive investing is the recent surge in gold and silver prices. After the discontinuation of Sovereign Gold Bonds by the Government of India, gold ETFs and gold funds remain the best channels for investing in gold. Similarly, silver ETFs are clear favourites in comparison with physical silver. With gold and silver expected to continue their upward trajectory, passive investments in this asset class will only increase.

Passive investing through index funds is an excellent choice for investors who are wary of stock markets but wish to take an exposure to equity. They know that the index is a basket of credible companies that have passed muster as there are stringent conditions that need to be met before a stock can be included in an index. Thus, conservative investors are taking the passive investing route to wealth creation through equity.

“In the US, passive investing has surpassed active investing due to persistent underperformance of active managers and the appeal of low-cost, diversified portfolios. Similarly, Indian active funds are struggling to consistently outperform benchmarks, pushing investors toward passive alternatives. However, unlike the US, Indian investors are also using passive products for tactical exposure to commodities like gold and silver, reflecting local market preferences,” informs Trivedi.

India's experience with passive investing is still nascent compared to the US, but the numbers indicate a clear shift in choice for many investors. Passive funds offer broad market exposure, enabling investors to capture India's structural growth while mitigating the risks associated with individual stock selection.

With rising AUM, regulatory support, and evolving investor behaviour, passive investing is set to play a central role in India's wealth creation narrative. Quietly, passive investing is enforcing a structural shift in the mutual fund landscape, reshaping wealth creation in India.