Passive investment funds, including index funds and exchange-traded funds (ETFs), represented 16.11% of India's mutual fund assets as of December 2025, according to the Association of Mutual Funds in India. This marks an increase from 8.75% in 2020, but the growth remains modest compared to the U.S. market, where passive funds held 54.8% of total fund assets at the end of 2025.
Growth of Passive Funds
The total assets in passive funds in India have grown nearly fivefold over the past five years, rising from ₹2.71 trillion in 2020 to ₹12.92 trillion. Despite this growth, retail investors hold only 8% of these assets, while corporates dominate with 73%. Investor folios for passive funds have also increased significantly, reaching 3.83 crore from just 0.43 crore during the same period.
Performance of Actively Managed Funds
Actively managed equity funds have struggled to outperform their benchmarks. A rolling return analysis from Ace MF indicates that large-cap schemes underperformed the Nifty 100 Total Return Index (TRI) 41% of the time over five-year periods ending in 2025. Mid-cap funds lagged behind the Nifty Midcap 150 TRI in 69% of such periods, while small-cap funds underperformed the Nifty Smallcap 250 TRI 40.6% of the time. These performance challenges contribute to the growing interest in passive investment strategies.
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The limited growth of passive funds in India suggests ongoing challenges for actively managed funds, potentially influencing investor behavior toward lower-cost options. This trend may affect asset flows in the mutual fund industry, particularly in the equity sector.
Investors will watch for further developments in fund performance metrics and regulatory changes that could impact the mutual fund landscape in India.