Passive investing in India has moved far beyond being a niche strategy reserved for institutional investors. Over the past seven years, passive funds have emerged as one of the fastest-growing segments of the mutual fund industry, driven by rising investor awareness, digital adoption, and growing demand for low-cost, rule-based investment products.
According to industry estimates, passive assets under management (AUM) have surged nearly 18-fold, from less than ₹1 lakh crore in 2018 to around ₹14–15 lakh crore by the end of 2025. Passive funds now account for nearly 18% of the Indian mutual fund industry’s total AUM, highlighting a major shift in investor behaviour.
At the centre of this growth are index funds, exchange-traded funds (ETFs) and fund of funds (FoFs), which together make up India’s passive investing universe.
From alternative strategy to mainstream investing
For years, actively managed mutual funds dominated Indian portfolios, with fund managers attempting to outperform benchmark indices through stock selection and market timing. Passive funds, in contrast, simply aim to mirror the performance of benchmark indices such as the NIFTY 50 and the BSE SENSEX.
What initially began as a relatively small category has now evolved into a mainstream portfolio allocation tool.
“Passive investing in India has evolved from a relatively limited category to an important and rapidly growing segment of the mutual fund industry,” says Anand Vardarajan, Chief Business Officer at Tata Asset Management.
“Over the last seven years, passive AUM has risen significantly, from well under ₹1 lakh crore in 2018 to around ₹14–15 lakh crore by the end of 2025, taking its share of mutual fund industry assets to the high teens,” he tells Fortune India.
According to Vardarajan, multiple structural shifts are driving this trend. “Low-cost index funds and ETFs offer a transparent, rule-based way to access markets, with relatively simple and predictable portfolios. Alongside well-established active funds, they have broadened the menu of solutions available to investors,” he says.
Why passive funds are gaining traction
One of the biggest attractions of passive investing is simplicity. Unlike actively managed funds, passive products track predefined indices, reducing the need for constant fund manager intervention. This also makes them relatively low-cost investment options, an increasingly important consideration for retail investors focused on long-term wealth creation.
Passive funds are often referred to as “mirror funds” because they aim to replicate the composition and returns of an underlying index. The segment includes index funds, ETFs and FoFs, offering exposure across equities, commodities and fixed income without requiring direct stock-picking expertise.
“Growing investor awareness, wider availability of passive products, and the rise of digital investment platforms have made index funds and ETFs more accessible to retail investors across cities,” says Vardarajan.
Institutional participation has also expanded the category. “Broader adoption of ETFs by institutional investors over the last few years has helped create a larger and more stable base for the segment, supporting overall AUM growth,” he adds.
Passive investing expands beyond large-cap indices
Passive investing in India is no longer restricted to traditional large-cap benchmarks.
Vardarajan explains that while broad-market indices continue to remain core allocations for many investors, participation is increasing across sectoral strategies, factor-based indices, thematic products, debt, commodities, and international exposure.
“The Indian passive ecosystem itself reflects this diversification. As of December 2025, the industry had over 300 ETFs, more than 350 index funds and a steadily rising number of indices being tracked across categories,” he says.
Investors today can access passive exposure across sectors such as banking, pharma, infrastructure, manufacturing and technology, alongside factor-based strategies linked to momentum, alpha and low volatility.
“This indicates that passive investing is gradually moving from being purely a large-cap allocation tool to becoming a broader portfolio construction approach,” he explains.
Sectoral, thematic, and factor-based investing on the rise
Initially, passive investing in India was largely concentrated around flagship indices such as the Nifty 50 and Sensex. However, the market has evolved rapidly, giving investors access to a wider range of passive strategies.
Today, investors can choose from products linked to sectoral, thematic and factor-based opportunities. “Passive funds are giving investors a straightforward way to participate in broad market opportunities without having to pick individual stocks or time sectors,” Vardarajan says.
Beyond benchmark indices such as the Nifty 50, Sensex 30, Nifty Next 50, and Nifty 500, investors can now access passive products linked to banking, pharma, digital, manufacturing and infrastructure themes.
Factor investing is also gaining traction through strategies focused on momentum, alpha, quality and low volatility. “This gives investors and advisors the flexibility to construct portfolios that blend broad market exposure with targeted tilts, using only rule-based strategies,” he says.
Passive investing goes multi-asset
Passive investing is also expanding beyond equities. Commodity ETFs tracking gold and silver, along with debt and liquid ETFs and index funds, are allowing investors to create diversified multi-asset portfolios using passive instruments.
For investors who do not wish to trade ETFs directly on stock exchanges, FoFs provide access to passive investing without requiring a demat account, by investing in baskets of ETFs or index funds. “Passive funds are increasingly being used alongside active strategies as part of diversified portfolios, giving investors and advisors more flexibility in how they combine different approaches to meet specific goals,” Vardarajan points out.