Retail folios in index funds grow 12-fold since March 2020: Zerodha Fund House

In a compelling revelation, a study by Zerodha Fund House highlights a remarkable surge in the adoption of index funds among retail investors over recent years. The total number of retail folios in index funds has skyrocketed nearly 12-fold, growing from 4.95 lakh in March 2020 to an impressive 59.37 lakh by December 2023, highlighted the report. This meteoric rise reflects a broader trend of increased investor preference for passive investment strategies.

The surge in retail interest is further corroborated by a staggering increase in the total Assets Under Management (AUM) of index funds, noted Zerodha. It informed that from approximately ₹8,000 crore in March 2020, the AUM of these funds has skyrocketed 25 times to about ₹2,13,500 crore by March 2024.

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Notably, debt index funds had seen a sizable growth from negligible to no AUM till March 2021 to almost surpass the milestone AUM of ₹1.1 lakh crore in March 2024, further pointed out the brokerage firm. This growth has seen debt index funds constitute 51.5 percent of the total AUM, with equity index funds contributing 48.5 percent. The total number of index funds has also grown significantly, with an increase from 44 in March 2021 to 207 by March 2024, marking a 370 percent rise, it observed.

Vishal Jain, CEO of Zerodha Fund House, comments on the trend, stating, “The increasing contribution of folios in the MF industry is incrementally being contributed by index funds. Nearly 11 percent of new folios last financial year came from index funds. It is only the beginning of a growing trend and Zerodha Fund House is proud to play its part in it. Retail investors increasingly prefer to have simple and transparent exposures with passive products like index funds in their portfolios and this trend is heartening to see.”

The breakdown of assets under management across various indices reveals a clear investor preference. As per the report, the Nifty 50 index dominates with 70.7 percent of the total AUM at ₹52,000 crores, indicating a strong inclination towards large-cap stocks.

Meanwhile, the Nifty Next 50 accounts for 14.6 percent of the AUM at ₹10,000 crores, suggesting a balanced approach to risk and return. As of June 2024, index funds reached a record high AUM of ₹2.43 lakh crore, reflecting a remarkable 900 percent increase over the past three years, it noted. This growth highlights the substantial rise in index funds’ popularity among retail investors, surpassing other mutual fund categories in AUM growth percentage.

Zerodha Fund House currently offers two index funds: the Zerodha Nifty LargeMidcap 250 Index Fund, which tracks the Nifty LargeMidcap 250 Index, and the Zerodha ELSS Tax Saver Nifty LargeMidcap 250 Index Fund, an equity-linked savings scheme with a statutory lock-in period of three years, also tracking the Nifty LargeMidcap 250 Index. These offerings are designed to cater to the growing appetite for passive investment products among retail investors.