According to a report by Motilal Oswal Financial Services, the Indian mutual funds industry is experiencing a significant transformation as a large number of investors are moving towards long-term goals, buy-and-hold strategies.
The report pointed out that the change in the industry is being driven by the exceptional growth in passive investing, which has been happening over the past few years.
The report stated that the share of passive funds in quarterly average assets under management (QAAUM) has gone up to approximately 17.1 per cent as of September 2025, whereas it was just 7 per cent in FY20.
It stated, “India’s mutual fund landscape is experiencing a structural shift towards passive investing” (as reported by ANI).
The report stated that during the period from September 2021 to September 2025, exchange-traded funds (ETFs) and index funds have seen AUM CAGRs of 28 per cent and 81 per cent, respectively, and total equity AUM has grown at 28 per cent.
This is an indication of the very low-cost, benchmark-linked investment options gaining tremendous ground.
It was even further stated that passive investing has now entered a phase of structural growth characterised by the breakout year FY25.
The report noted that net inflows into passive funds were more than doubled, increasing approximately 118 per cent YoY. This was backed by a huge 278 per cent rise in index fund flows and a 59 per cent increase in ETF flows.
Passive investing is usually associated with the investment strategy of market index tracking rather than trying to outperform, and that typically adopts low-cost vehicles like index funds and exchange-traded funds (ETFs), thereby making it an attractive option for long-term investors.
Notwithstanding, the report indicated that the inflows have moderated in YTDFY26 (April-October 2025). The passive inflows during this time period decreased by 34 per cent year-on-year, while the equity fund flows dropped 8 per cent.
The slowdown is said to be due to base effects and a change in investor preference toward actively managed fund categories like flexi-cap and mid-cap funds.
Even though there has been a slight decrease in popularity, the future of passive funds still looks good in the long run. According to the report, this trend is supported by the increasing investors’ trust in low-cost products, the availability of more products, and the rising acceptance of these funds by institutional investors.
On the other hand, active funds are very much alive and kicking, contributing to the overall growth. Hence, the proportion of passive funds in the total investment industry will increase.
However, the passive funds being the least expensive of all, the scale advantages are probably going to help maintain the firms’ overall profitability.