India’s passive mutual fund sector is growing rapidly, and assets under management (AUM) will grow to ₹12.2 lakh crore in 2025—6.4 times more than ₹1.91 lakh crore in 2019, representing a strong compound annual growth rate (CAGR) of 36%. According to Motilal Oswal Mutual Fund (MOMF)’s latest Passive Survey 2025, the surge reflects a trend towards low-cost, index-tracking investments amid rising financial literacy and market maturity.

The third edition of the survey, based on insights from over 3,000 retail investors and over 120 distributors, including RIAs and wealth managers, shows increased awareness and adoption. 76% of retail mutual fund investors now own index funds and exchange-traded funds (ETFs), which is significantly higher than in previous years. Those who have at least one passive product have increased from 61% in 2023 to 68% in 2025—indicating mainstream appeal. Nevertheless, about one-third of investors still prefer active funds due to better returns or less familiarity with passive investments.

Key factors include cost efficiency, with 54% of investors preferring a low expense ratio, followed by diversification (46%), simplicity and transparency (46%), and consistent performance (29%). “Passive investing has now gone from niche to essential, with investors adopting factor-based and innovative strategies for long-term wealth creation,” said Prateek Oswal, head of passive business at Motilal Oswal AMC.

Distributors also echo this enthusiasm: 93% of distributors demonstrate a solid understanding of passive funds, and 70% have already incorporated them into client portfolios, and are planning at least a 5% allocation increase in FY26. Selection depends on tracking error and expense ratio. Among passive holders, 57% own 1-3 funds, while 17% own more than five funds. Preference is mixed: 49% in both index funds and ETFs, 34% in index funds alone, and 16% in ETFs alone.

Since March 2023, AUM has grown 1.7x at 26% CAGR, driven by millennial interest (54% of distributors focus on their growth) and digital platforms—60% transact through apps. As the AUM of India’s MF industry approaches Rs 75 lakh crore, the share of passive investors now stands at 17%, establishing them as the cornerstone for diversified, disciplined investing in volatile markets.