Passive AUM grows in FY25, but passive share stagnates

20 Jun 2025 , 12:07 PM

FY25 PASSIVE AUM SHARE STAGNATES

A lot has been written about how passive funds caught on in last few years. If we look at the passive fund AUM, it has shown steady growth, but then AUM can be largely market driven. Also, passive investments in India are largely institutional and HNI products; not retail products. Hence folios also would not give a credible picture. A better way to look at passives is through the lens of share of overall MF AUM.

Fiscal Year	ETF AUM	Index Fund AUM	Passive AUM	Total MF AUM	Passive Share
FY16-17	50,211	2,452	52,663	17,54,619	3.00%
FY17-18	78,664	3,061	81,725	21,36,036	3.83%
FY18-19	1,39,412	5,237	1,44,649	23,79,584	6.08%
FY19-20	1,54,340	8,056	1,62,396	22,26,203	7.29%
FY20-21	2,89,698	18,990	3,08,688	31,42,764	9.82%
FY21-22	4,30,644	67,247	4,97,891	37,56,683	13.25%
FY22-23	5,07,017	1,60,776	6,67,793	39,42,031	16.94%
FY23-24	6,95,205	2,13,572	9,08,777	53,40,195	17.02%
FY24-25	8,38,343	2,82,475	11,20,818	65,74,287	17.05%

Data Source: NSE Passive Quarterly

If you look at the AUM share of passives in the above table, it has grown rapidly from just 3.0% in FY17 to 16.94% in FY23. That is a massive AUM share expansion in 6 years. The AUM share expanded rapidly around the pandemic and later as many large investors saw passive funds as a simple and low-cost option to participate in the rally from lows. In a volatile market, most active fund managers struggled to outperform the index.

In such a situation, passive funds with low costs delivered the goods better. Also, most active fund managers were facing the problem of Kurtosis, wherein they had to forego attractive opportunities, because of SEBI ownership limits. The best part was that passive funds linked to equity indices delivered the returns, with better diversification and lower costs. That was the reason for the growth of passives between FY17 and FY23.

WHY DID PASSIVE AUM STAGNATE SINCE FY23?

There have been several reasons why share of passive funds AUM has stagnated in last 3 years. Between 2022 and 2025, it has stagnated around 17% on an annualized basis. There are three reasons for the stagnation of passive AUM as a share of total AUM. Firstly, year 2022 saw the Nifty and Sensex recovery and start its long journey towards new highs. When the indices are rallying and FPI flows are robust, the obvious choice is active funds.

Secondly, in last couple of years, investors showed a penchant for aggressive alpha plays. This includes mid-caps, small caps, sectoral, and thematic plays. Here, you do not have too many passive choices, so active funds are the only option. Thirdly, a big driver for surge in passive share was the passive debt AUM. With debt yields not attractive, even government is going slow on passive debt issuances. That too contributed to tepid passive share.

WHAT WAS THE PASSIVE ETF STORY IN FY25?

Here are key highlights of the passive ETF story in FY25. We will look at index funds separately.

• Out of the total passive ETF AUM of ₹8.38 Trillion, 79.5% was accounted for by equity ETFs, 11.6% by debt ETFs, and the balance 8.9% by gold and silver ETFs.
• There were a total of 252 ETFs in India, listed on the NSE. Out of these 183 equity ETFs tracked 81 indices, while 35 debt ETFs tracked a total of 15 indices.
• For FY25, net ETF flows were ₹68,226 Crore. This included ETF mobilizations of ₹2,31,411 Crore and ETF redemptions of ₹1,63,185 Crore.
• Total ETF trading volumes in FY25 stood at ₹3,82,648 Crore; which is 108.3% higher than FY24 and 219.7% higher than FY23.

Let us now turn to the story of passive index funds.

WHAT WAS THE PASSIVE INDEX FUNDS STORY IN FY25?

Here are some key highlights of the passive Index Fund story in the fiscal year. These are passive index funds across equity, debt, and gold.

• Out of the total passive index fund AUM of ₹2.82 Trillion, 60.3% was accounted for by equity ETFs, while the balance 39.7% was accounted for by debt ETFs.
• There were a total of 308 index funds in India. Out of these 202 equity index funds tracked 72 indices, while 106 debt index funds tracked a total of 83 indices.
• For FY25, net index fund flows were ₹59,306 Crore. This has index fund mobilizations of ₹1,19,856 Crore and index fund redemptions of ₹60,550 Crore.

Clearly, debt has been a lot more active in index funds than in ETFs.

LACK OF PASSIVE NARRATIVE IN INDIA

There are 3 things that are actually missing in the passive narrative in India, which explains why passives are at 17% in India, while it is closer to 50% in developed economies. The first reason is the absence of originators. Unlike the US, where funds like Vanguard specialize in such index based products for retail investors, India is only seeing early stage of fund houses like Zerodha and Jio Blackrock with big plans for passive investing.

Secondly, investors in India do not fully appreciate the difference between CAGR returns and rolling returns. Once they understand rolling returns, the merits of passive investing is a lot more apparent. Lastly, passives must be woven seamlessly into financial planning; and for that they have to move from a push to a pull selling approach. That is the real missing link in the passive story in India!