Low fees, high trust: Indians go big on passive funds, 68% pick Index Funds

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At least 68% of Indian retail investors now invest in passive funds, signaling a sharp rise in adoption from 61% in 2023, according to a new survey by Motilal Oswal. The study also found that 93% of distributors plan to raise passive allocations in FY25–26, as the segment’s AUM surged 6.4 times in six years to ₹12.2 lakh crore.

 

Passive investing is fast becoming mainstream in India. According to the Motilal Oswal Mutual Fund Passive Survey 2025, 68% of investors now hold at least one passive fund, while industry AUM has grown 6.4-fold since 2019. The report also found that nine in ten distributors plan to increase client exposure to passive strategies in the coming year.

 

The survey, conducted in August–September 2025, covered 3,000+ investors and 120+ distributors, including mutual fund distributors, Registered Investment Advisors (RIAs), and wealth managers across India.

 

Passive Investing on the Rise

 

India’s passive fund industry has witnessed exponential growth, with Assets Under Management (AUM) rising to ₹12.2 lakh crore, a 6.4-fold increase in six years — from ₹1.91 lakh crore in 2019 — growing at a 36% CAGR. In just over two years since March 2023, AUM has grown 1.7 times (~26% CAGR), underscoring the accelerating investor shift toward passive instruments.

 

The survey found that 76% of mutual fund investors are aware of passive products in 2025, compared to around 61% in 2023. However, a third of investors remain outside this space, citing greater confidence in active funds or limited familiarity with passive strategies.

 

When selecting passive funds, investors cited key motivators such as:

 

Low cost (54%)

 

Diversification (46%)

 

Simplicity and transparency (46%)

 

Performance (29%)

 

Distributors Strengthen Passive Push

 

The distributor side of the survey revealed similar enthusiasm.

 

93% of distributors plan to increase passive fund allocation by at least 5% in FY25–26.

 

Around 70% of distributors already include passive products in their clients’ portfolios, though most clients hold fewer than three passive funds.

 

Distributors cited diversification (62%), low risk (34%), and ease of understanding (28%) as primary reasons for recommending passives.

 

According to MOMF, this suggests passive funds are evolving from a satellite exposure to a core portfolio component.

 

Investor Behaviour and Preferences

 

The survey revealed that financial independence (61%), retirement planning (49%), and portfolio diversification (31%) are the top investment goals for Indian investors.

A long-term orientation dominates investor behaviour — 85% hold their investments for more than three years, while only 2% exit within a year.

 

In terms of transaction modes, 60% of investors prefer online apps, followed by 39% using mutual fund websites, indicating the growing dominance of digital investing.

 

Among passive investors:

 

57% hold 1–3 passive funds, while 17% hold more than five.

 

49% invest in both index funds and ETFs, while 34% prefer only index funds.

 

Broad-based equity funds remain the most popular (79% of index fund investors and 62% of ETF investors), followed by commodities (37% and 61%) and sectoral/thematic funds.

 

Smart Beta funds are gaining traction, with momentum (40%), quality (37%), and value (35%) being the most preferred strategies.

 

Who’s Driving the Trend

 

The survey found that millennial investors are leading the adoption of passive products, followed by Gen X. Distributors noted that younger investors show a higher preference for low-cost, transparent, and rule-based investment strategies.

 

When evaluating passive funds, tracking error (68%) and expense ratio were ranked as the top decision-making metrics, highlighting a focus on accuracy and efficiency.

 

Here are the key highlights:

Other Key Highlights of the Passive Survey 2025

 

Investors

 

Investment Objectives & Behaviour: For Indian investors, the primary objective of investing is financial independence (61%), followed by retirement planning (49%) and portfolio diversification (31%). A strong long-term orientation is evident, with 85% of investors holding their investments for more than three years, while only 13% stay invested for one to three years and a mere 2% for less than a year. In terms of investment style, 57% prefer a combination of SIPs and lumpsums, compared to 26% rely solely only on SIPs and 17% prefer lumpsum investing.

 

Information Sources and Channels: Financial websites remain the primary source of information for 52% of investors, followed by newspapers (38%), social media (29%) and TV (18%). Digital modes also dominate how investors transact, with 60% preferring online apps and 39% mutual fund websites, while financial advisors (15%) and banking partners (5%).

 

Passive Fund Adoption: Among passive investors, more than half (57%) currently hold one to three passive funds, 26% hold three to five, and about 17% own more than five funds. In terms of product preferences, 49% invest in both index funds and ETFs, 34% only in index funds, and 16% only in ETFs. Broad-based equity is the anchor exposure—79% of index fund investors and 62% of ETF investors allocate here. Commodities are the next preference (37% for index funds, 61% for ETFs), followed by sectoral or thematic funds (34% for index funds, 33% for ETFs), and international equity (26% and 32% respectively).

 

Smart Beta Strategies: Among Smart Beta approaches, momentum is the most popular (40%), closely followed by quality (37%) and value (35%), indicating investors’ appetite for rule-based strategies beyond traditional indices.

 

Distributors

 

Information Sources: Distributors primarily rely on AMC communications—through websites, emails, and WhatsApp (73%), followed closely by online platforms (71%). Traditional media such as television and newspapers account for 34%, while social media (23%) and friends and family (10%) play a smaller role.

 

Investor Demand Trends: More than half of distributors (54%) observe that millennial investors are showing the strongest interest in passive funds, with Gen X following behind. This indicates that these demographics are driving adoption and shaping the future growth of passive investing.

 

Product Preferences: When it comes to passive products, 49% of distributors prefer offering both index funds and ETFs, 35% focus primarily on index funds, and 16% lean toward ETFs. Around 79% predominantly recommend broad-based index funds and ETFs as core allocations for their clients, while ~48% incorporate commodities such as gold and silver to diversify beyond equities.

 

Evaluation Metrics: In assessing passive funds, tracking error remains the most important criterion for 68% of distributors, followed closely by expense ratio, highlighting the priority given to accurate index replication and cost efficiency when selecting products for clients.