Passive Fund AUM Growth in India: Are Index Funds Catching Up With Active Management?

Last Reviewed and Updated: 17 Aug 2026

Passive investing in India has gone from a rounding error to a genuine part of the mutual fund industry in less than a decade, and the growth numbers make for an easy headline: assets have roughly quintupled since 2020, folios are up by a third in the past year alone, and money has poured into index funds and exchange traded funds at a pace that would have looked implausible a few years ago. Read past the absolute numbers to the share of the industry passive actually holds, and a more complicated story appears. That share has barely moved in three years.

This matters because the active versus passive question is not academic for the millions of Indians now running SIPs. It shapes how much they pay in fees, how much research they need to do before picking a fund, and whether a fund manager's skill is worth paying for at all. Answering it properly requires separating a few different things that tend to get bundled into one triumphant passive narrative: growth in absolute assets, growth in market share, where that money is actually coming from, and how active funds have actually performed against their benchmarks recently, not just in the abstract.

This article traces how passive assets grew from a rounding error to roughly a sixth of the industry and then stalled there, what is actually driving the recent headline growth numbers, the gap between passive's asset growth and its actual monthly net inflows, where passive holds a genuine and durable advantage, where active managers actually outperformed in 2025, what the longer run performance record still shows, why India's passive share remains far below the global figure, and what all of this means for an investor choosing between the two.

Passive assets made up roughly 3% of India's mutual fund industry in FY17. By FY23, that share had climbed to around 17%, a genuinely rapid structural shift driven by the post pandemic realisation among many investors that a low cost index fund could deliver most of the market's return without the uncertainty of manager selection.

What has happened since is less often reported: the share has essentially stagnated at that level. It stood at 17.05% as of March 2025 and had actually eased slightly to 16.72% by the middle of FY26, even as the absolute rupee value of passive assets kept climbing because the entire industry, active funds included, kept growing alongside it.

In absolute terms, passive assets under management stood at roughly Rs 11.13 lakh crore at the end of FY25 and had crossed Rs 14 lakh crore by December 2025. The number of passive schemes on offer grew to 740 in FY26 from 614 the year before, and passive folios rose to 5.7 crore from 4.1 crore, a 40% jump. Every one of those numbers looks like acceleration. None of them, on their own, tell you whether passive is actually taking share from active, since active fund assets have been growing at a broadly similar pace over the same period.

Metric	FY25	FY26
Passive AUM	Rs 11.13 lakh crore	Over Rs 14 lakh crore (as of December 2025)
Passive share of industry AUM	17.05% (March 2025)	16.72% (mid year), broadly flat
Number of passive schemes	614	740
Passive folios	4.1 crore	5.7 crore
Annual passive fund inflows	Rs 14,100 crore	Rs 30,800 crore

A meaningful part of the recent passive growth story is not equity index investing at all. Gold and silver exchange traded funds have been the standout category, with their combined assets reaching over Rs 2.71 lakh crore, roughly three and a half times where they stood a year earlier, driven by a strong bullion price rally rather than any shift in appetite for equity index funds specifically.

Domestic equity index funds and ETFs did grow too, with inflows into domestic equity ETFs roughly doubling and index fund inflows rising by about 85% between FY25 and FY26, but commodity linked passive products, not equity trackers, accounted for a disproportionate share of the headline growth.

A second structural factor is the Employees' Provident Fund Organisation, whose own investment guidelines require it to route a portion of its incremental corpus into equity ETFs. That flow is large, recurring and not a matter of individual investor choice, meaning a meaningful slice of reported passive AUM growth reflects a pension fund following its mandate rather than millions of retail investors independently abandoning active funds.

Passive assets also remain concentrated: the five largest fund houses held roughly 75% of all passive assets in FY26, with UTI Mutual Fund alone running close to 46% of its book in passive form, up from 42% a year earlier, reflecting its long standing role as a primary vehicle for EPFO and other large institutional index mandates.

Passive fund folios grew 33.3% year on year through May 2026, and assets under management grew 24.7% over the same period, both headline numbers that look like unambiguous momentum. Net inflows for May 2026 alone, however, came to just Rs 362 crore, among the thinnest monthly readings in recent memory, with six of twelve passive fund categories recording net outflows that month.

The gap between a strong year on year AUM figure and a nearly flat monthly flow figure is explained largely by price appreciation in existing holdings, particularly gold and silver, rather than by fresh money continuing to pour in at the earlier pace. Reading passive's growth story through AUM alone, without checking the flow figure underneath it, risks mistaking a rally in existing holdings for accelerating investor conviction.

Whatever the ambiguity elsewhere, passive funds hold one clear and durable advantage that is unlikely to disappear: cost. Under SEBI's revised expense ratio framework effective April 2026, index funds and ETFs carry a flat expense cap of 0.90%, while open ended active equity funds carry a slab based cap that starts at 2.10% for smaller funds and can fall toward roughly 0.95% only for the very largest active schemes once blended across their full asset base.

For most actively managed equity funds that have not yet reached that scale, and for regular plans in particular, the cost gap against a comparable index fund remains wide, and that gap compounds meaningfully over a long holding period regardless of which side wins on performance in any given year.

The most recent SPIVA India Year End 2025 scorecard, measuring performance through December 31, 2025, complicates any simple passive triumph narrative. Active large cap and ELSS funds broadly struggled to keep pace with their benchmarks in 2025, consistent with the longer running pattern in those categories.

Active mid and small cap funds, by contrast, delivered majority outperformance for the year, their best relative showing since 2014. The S&P India SmallCap benchmark itself fell by roughly 7.9% during 2025, while active mid and small cap funds on average declined by less than 1%, meaning much of that apparent active skill reflected funds holding relatively more cash and higher quality names through a falling market rather than a repeatable stock picking edge.

A single strong year does not overturn a decade of evidence. Over the ten years covered by recent SPIVA India scorecards, roughly three in four active large cap funds and close to four in five active mid and small cap funds have underperformed their respective benchmarks, figures broadly consistent across successive SPIVA India editions even as the exact percentage shifts slightly from one scorecard to the next.

Bond funds show a similar long run pattern, with government and composite bond categories showing underperformance rates as high as 97% over ten years in some editions of the scorecard.

Category	2025 Calendar Year Result	10 Year Underperformance Rate
Large cap equity	Broadly underperformed benchmark	Roughly 73 to 75%
Mid and small cap equity	Majority outperformed, best since 2014	Roughly 79 to 82%
ELSS	Broadly underperformed benchmark	Around 89%

Figures drawn from SPIVA India scorecards published by S&P Dow Jones Indices across 2025 and early 2026 editions. Exact percentages vary slightly by scorecard vintage and time horizon measured; figures above are rounded to reflect that range rather than a single precise reading.

Most large cap fund managers lost to the index over the past five years. In 2025 alone, many mid and small cap managers won. Both facts are true, and only one of them should change how you invest.

Globally, passive strategies account for more than 60% of fund assets in developed markets such as the United States, more than three times India's current share. Part of the gap is structural: India's mutual fund regulations remain relatively tightly drawn compared with some other markets, limiting how much product innovation passive providers can bring to market, which caps how much shelf space passive products can realistically occupy.

New entrants may change that: Reliance's Jio backed asset management venture and Zerodha's mutual fund business have both signalled a passive first product strategy, and additional global index providers have discussed entering through the GIFT City international financial centre. Whether that translates into renewed acceleration in passive's market share, after three years of a stalled percentage, remains an open question.

India's passive share has grown roughly fivefold since 2017. It has also been stuck at close to the same number for three years running.

A few practical conclusions follow from separating growth in assets from growth in share, and headlines from the underlying flow data:

• Do not treat passive AUM growth alone as evidence that index funds are winning against active funds. A meaningful share of that growth is commodity ETFs and EPFO mandated flows, not a broad retail rotation out of active management.

• Cost remains passive's clearest and most durable edge. A wide expense ratio gap against smaller active funds and regular plans compounds significantly over a long holding period, independent of any single year's performance result.

• Do not extrapolate a single strong year for active mid and small cap funds into a lasting edge. The 2025 result reflects unusually defensive positioning during a falling market for that segment specifically, not necessarily a repeatable skill that will hold in the next cycle.

• Over meaningful long horizons, the majority of active funds across large cap, mid and small cap, and ELSS categories have still underperformed their benchmarks, and that longer run picture should carry more weight than any single calendar year.

• A blended approach, a low cost index fund for core market exposure paired with selective active exposure in less efficient segments like mid and small caps, reflects what the data actually supports better than an all or nothing stance on either side.

Status as of July 2026

AUM and flow figures below reflect AMFI and industry data through May 2026, the most recent published at the time of writing. Performance comparison figures are drawn from the SPIVA India Year End 2025 scorecard, published by S&P Dow Jones Indices using data as of December 31, 2025. These figures update regularly as new monthly AMFI data and periodic SPIVA scorecards are released. Check amfiindia.com and spglobal.com for more current figures.

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Figures cited are drawn from AMFI industry data, Cafemutual and other industry publications, and SPIVA India scorecards published by S&P Dow Jones Indices, as publicly available at the time of writing, and are subject to revision in subsequent data releases. Past performance is not indicative of future results. Readers should consult a SEBI registered investment adviser before making investment decisions.