The survey reveals a rapid expansion in the passive industry. Assets Under Management (AUM) in the segment stood at Rs 12.2 lakh crore, marking a 6.4x increase over six years (36% CAGR) from Rs 1.91 lakh crore in 2019.
From March 2023 alone, the AUM has grown 1.7x at a CAGR of approximately 26%, MOMF noted.
According to the survey, 76% of mutual fund investors are now aware of Index Funds or ETFs in 2025. Adoption levels have risen to 68% in 2025 from around 61% in 2023. Despite this momentum, “one-third of investors remain outside, citing higher confidence in active funds or unfamiliarity with passive products,” the survey added.
Investors cited low costs (54%), diversification (46%), simplicity and transparency (46%), and performance (29%) as key factors behind their passive fund choices. Among passive fund holders, 57% currently own one to three funds, 26% hold three to five, while 17% own more than five.
Product preferences show that 49% invest in both index funds and ETFs, 34% only in index funds, and 16% only in ETFs.Broad-based equity remains the dominant allocation, with “79% of index fund investors and 62% of ETF investors” allocating to this category.Commodities followed next, along with sectoral or thematic and international equity funds. Smart Beta strategies also found favour, with momentum (40%), quality (37%), and value (35%) being the most popular rule-based approaches.
MOMF also reported strong distributor alignment with the passive trend. “93% of surveyed distributors” now understand passive funds, with ~46% demonstrating deep knowledge. Nearly 70% include them in client portfolios. “Most distributors (93%) plan to further increase passive allocation by at least 5% in FY25-26,” the firm stated.
However, MOMF pointed out that passive fund penetration within portfolios remains limited. “At present, 70% of their clients hold fewer than three passive funds, indicating that passive exposure plays a satellite role in portfolios.”
Among distributors, 49% prefer offering both index funds and ETFs, 35% focus primarily on index funds, and 16% lean toward ETFs. Approximately 79% recommend broad-based equity funds as core allocations, while “~48% incorporate commodities such as gold and silver to diversify beyond equities.”
In terms of evaluation metrics, MOMF noted that “tracking error remains the most important criterion for 68% of distributors, followed closely by expense ratio.”
For Indian investors, financial independence (61%) remains the top investment goal, followed by retirement planning (49%) and portfolio diversification (31%). A strong long-term orientation is evident as 85% of investors hold their investments for more than three years.
Digital channels have emerged as key information sources. “Financial websites remain the primary source of information for 52% of investors,” followed by newspapers (38%), social media (29%), and TV (18%). Distributors, meanwhile, primarily rely on AMC communications and online platforms.
MOMF observed that millennials are leading the adoption of passive funds. “More than half of distributors (54%) observe that millennial investors are showing the strongest interest in passive funds, with Gen X following behind.”
With the survey capturing robust retail and distributor participation and strong year-over-year growth in passive fund adoption, Motilal Oswal Mutual Fund concluded that the momentum is poised to continue into FY26.
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