Over the past few years, one key trend within the ever-rising popularity of mutual funds, has been the massive interest around the passive style of investing. Mutual funds tracking indices across equities, bonds and commodities have seen investors flocking to them.
In the four years from September 2021 to September 2025, the assets under management (AUM) of passive funds rose nearly threefold (2.8x) from Rs 4 trillion to Rs 11.2 trillion. From just 5% of overall mutual fund industry assets, passive schemes account for 17% of the pie as of September 2025, according to data from trade body AMFI.
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From the sheer variety of offerings across exchange traded funds (ETFs) and index funds, apart from offerings across asset classes, passive investing has evolved into an attractive proposition in an investor’s portfolio.
Expanding bouquet
Index funds aren’t just about tracking a few frontline indices anymore or only about equities. They come in several varieties.
Market capitalisation based: From just tracking the Nifty 50 and Sensex, there are now products across market capitalisation. For example, there are funds tracking the Nifty 100, Nifty Small Cap 250, Nifty Midcap 150, Nifty Large Midcap 250 and the Nifty 500 among a few others. There is an index fund or ETF across market capitalisations and for varied risk appetites.
Factor or smart-beta based: For investors with preference for specific styles (or factors), too, there are passive products available. Indices tracking factors such as value, momentum, quality and dividend yield are available to investors. There are both ETFs and index funds to track these factors.
Sector based: Some investors tend to have conviction about certain sectors or themes that they believe would do well over the long term. For these high-risk investors, there are passive funds tracking sectors such as banking & financial services, auto, banks, information technology, pharmaceuticals and the like.
Debt based: Passive funds are also available in the fixed income category. Indices that track securities – government securities, state development loans, PSU bonds, etc. – that are part of benchmarks provided by the NSE or CRISIL are the usual variants. Target maturity funds, which mature in specific years, are available for investors who wish to take exposure in such a way that the maturity period coincides with specific financial goals.
Commodities based: For investors seeking exposure to gold as a safe haven or silver as an industrial metal, there are ETFs tracking these commodities. For investors without demat accounts, there are fund of funds which in turn invest in these ETFs.
Multi-asset based: There are passive funds that invest across equities, debt and commodities for investors seeking passive asset allocation.
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Gaining from passives
For investors there are multiple advantages in taking exposure to passive funds.
First, passive investing gives flexibility in portfolio construction that suit specific investor needs and risk appetites. For example, the core portion of an investor’s portfolio can be in active funds, while the satellite part can be parked in passive funds. Another idea would be to invest across passive fund types to create a diversified portfolio with passive schemes.
Second, asset allocation becomes easier via passive funds given the availability of such schemes across asset classes. Suitable investments across equities, bonds and commodities in keeping with an asset allocation becomes smoother.
Third, passive funds track rule based indices which are rebalanced periodically based on the methodology of each index which is generally every quarter or once in six months.
Fourth, passive funds offer investments at low costs. Since there are no fund managers involved, these ETFs or index funds are able to offer a variety of investments at a very low expense ratio.
Fifth, there is considerable simplicity in transacting in these products. ETFs can be bought or sold in the exchanges, while index schemes can be purchased and redeemed from the fund house. There is complete transparency and simplicity to the whole process.
For new investors, consulting your registered financial advisor before investing can help make the right choices.
(Author of the article is Chintan Haria, Principal - Investment Strategy at ICICI Prudential AMC)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)
In the four years from September 2021 to September 2025, the assets under management (AUM) of passive funds rose nearly threefold (2.8x) from Rs 4 trillion to Rs 11.2 trillion. From just 5% of overall mutual fund industry assets, passive schemes account for 17% of the pie as of September 2025, according to data from trade body AMFI.
Also Read | Silver ETFs down up to 28%: Buy the dip or stay away?
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Expanding bouquet
Index funds aren’t just about tracking a few frontline indices anymore or only about equities. They come in several varieties.
Market capitalisation based: From just tracking the Nifty 50 and Sensex, there are now products across market capitalisation. For example, there are funds tracking the Nifty 100, Nifty Small Cap 250, Nifty Midcap 150, Nifty Large Midcap 250 and the Nifty 500 among a few others. There is an index fund or ETF across market capitalisations and for varied risk appetites.
Factor or smart-beta based: For investors with preference for specific styles (or factors), too, there are passive products available. Indices tracking factors such as value, momentum, quality and dividend yield are available to investors. There are both ETFs and index funds to track these factors.
Sector based: Some investors tend to have conviction about certain sectors or themes that they believe would do well over the long term. For these high-risk investors, there are passive funds tracking sectors such as banking & financial services, auto, banks, information technology, pharmaceuticals and the like.
Debt based: Passive funds are also available in the fixed income category. Indices that track securities – government securities, state development loans, PSU bonds, etc. – that are part of benchmarks provided by the NSE or CRISIL are the usual variants. Target maturity funds, which mature in specific years, are available for investors who wish to take exposure in such a way that the maturity period coincides with specific financial goals.
Commodities based: For investors seeking exposure to gold as a safe haven or silver as an industrial metal, there are ETFs tracking these commodities. For investors without demat accounts, there are fund of funds which in turn invest in these ETFs.
Multi-asset based: There are passive funds that invest across equities, debt and commodities for investors seeking passive asset allocation.
Also Read | Explained: What Sebi's new TER rules mean for mutual fund investors
Gaining from passives
For investors there are multiple advantages in taking exposure to passive funds.
First, passive investing gives flexibility in portfolio construction that suit specific investor needs and risk appetites. For example, the core portion of an investor’s portfolio can be in active funds, while the satellite part can be parked in passive funds. Another idea would be to invest across passive fund types to create a diversified portfolio with passive schemes.
Second, asset allocation becomes easier via passive funds given the availability of such schemes across asset classes. Suitable investments across equities, bonds and commodities in keeping with an asset allocation becomes smoother.
Third, passive funds track rule based indices which are rebalanced periodically based on the methodology of each index which is generally every quarter or once in six months.
Fourth, passive funds offer investments at low costs. Since there are no fund managers involved, these ETFs or index funds are able to offer a variety of investments at a very low expense ratio.
Fifth, there is considerable simplicity in transacting in these products. ETFs can be bought or sold in the exchanges, while index schemes can be purchased and redeemed from the fund house. There is complete transparency and simplicity to the whole process.
For new investors, consulting your registered financial advisor before investing can help make the right choices.
(Author of the article is Chintan Haria, Principal - Investment Strategy at ICICI Prudential AMC)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
