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.