The report also found that 68% of investors now hold at least one passive fund, compared with about 61% in 2023.
The study, based on responses from over 3,000 investors and 120 distributors across the country, shows that index funds and exchange-traded funds (ETFs) have gained prominence as part of long-term portfolios.
Passive fund AUM has grown at a 36% compound annual rate since 2019, and by 26% annually since 2023, reflecting sustained interest from both retail and advisory segments.
Low costs, diversification, and transparency were identified as the main reasons for investors’ preference toward passive strategies. About 85% of respondents said they hold such investments for more than three years, underscoring a growing long-term orientation. Most investors prefer broad-based equity indices, followed by commodities and thematic products.
Among distributors, 93% plan to raise passive fund allocations for their clients in FY25–26, while 70% of investors currently hold fewer than three passive funds. Tracking error and expense ratio were cited as the key criteria when assessing products.
Millennial investors are showing the strongest demand for passive funds, with digital platforms emerging as the dominant investment channel. The survey also highlights the rise of smart beta strategies, with momentum, quality, and value factors gaining traction.
“In India, passive strategies have moved from being a niche allocation to being embraced by a wider investor base,” said Pratik Oswal, Chief of Passive Business at Motilal Oswal AMC. “Investors are open to factor-based and innovative passive approaches as a disciplined way to participate in long-term wealth creation.”