Passive Mutual Funds Gain Traction; AUM Rises To Rs 12.2 Lakh Cr In 2025

Passive mutual funds are gaining traction with the industry's assets under management rising to Rs 12.2 lakh crore in 2025, a jump of over six-fold in six years from Rs 1.91 lakh crore in 2019, according to a survey released by Motilal Oswal Mutual Fund on Monday.

In just over two years since March 2023, the asset base has grown 1.7 times.

The survey, which captured insights through the lens of over 3,000 investors and more than 120 distributors, including MF distributors, registered investment advisers and wealth managers across India, found that 76 per cent of respondent mutual fund investors are aware of Index Funds or ETFs in 2025.

Moreover, 68 per cent of investors surveyed have invested in at least one passive fund in 2025, up from 61 per cent adoption in 2023. However, even with this adoption growth, one-third of investors remain outside, citing higher confidence in active funds or unfamiliarity with passive products.

According to the third edition of Motilal Oswal Mutual Fund's Passive Survey 2025, investors cited low costs (54 per cent), diversification (46 per cent), simplicity and transparency (46 per cent), and performance (29 per cent) as key factors when selecting passive funds.

Also, the distributor survey reflected similar traction with 93 per cent of respondent distributors understanding passive funds, of which 46 per cent demonstrated deep knowledge and 70 per cent include them in their clients' portfolios.

Further, most distributors (93 per cent) plan to further increase passive allocation by at least 5 per cent in FY25-26. At present, 70 per cent of their clients hold fewer than three passive funds, indicating that passive exposure plays a satellite role in portfolios.

"In India, passive strategies have experienced significant growth in recent years, moving from being a niche allocation in only a few portfolios to being embraced by a broader investor base.

"Awareness is no longer limited to broad-based index solutions as investors are increasingly accepting factor-based funds and innovative passive strategies. With growing interest, passive investing is emerging as an important approach for investors seeking a disciplined way to participate in long-term wealth creation," Pratik Oswal, Chief of Passive Business at Motilal Oswal AMC, said.

For Indian investors, the primary objective of investing is financial independence (61 per cent), followed by retirement planning (49 per cent) and portfolio diversification (31 per cent).

With regards to investment behaviour, a strong long-term orientation is evident, with 85 per cent of investors surveyed holding their investments for more than three years, while only 13 per cent stay invested for one to three years and a mere 2 per cent for less than a year.

In terms of investment style, 57 per cent of respondents prefer a combination of SIPs and lumpsums, compared to 26 per cent who rely solely on SIPs, and 17 per cent prefer lumpsum investing.

In respect of information sources, investors rely on financial websites, newspapers, social media and television.