Passive AUM grows in H1FY26, but passive share falls

11 Nov 2025 , 11:46 AM

PASSIVE AUM SHARE FALLS IN H1FY26

If you take a broader perspective from FY17 to FY23, the share of passive AUM in overall mutual fund AUM has surged sharply from 3.0% to around 17.0%. However, since 2022-23, the share of passive AUM has stagnated around these levels. In fact, for the first half of the current fiscal (H1FY26), the share of passive AUM is down to 16.72% compared to 17.05% as of March 2025. The table below captures the break of passive AUM into ETF AUM and Index Fund AUM and the market share for each of these periods.

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%
H1-FY26	9,55,910	3,08,715	12,64,625	75,61,309	16.72%

Data Source: NSE Passive Quarterly

The growth in passive AUM was very rapid from FY20, when it surged from around 7% to 17%. This was in the post-pandemic scenario when the index was the best story in India, and investors realized that there was a lot of investment wisdom in investing in such passive funds and ETFs. They gave top-class returns with lower stock picking risk. That explains the rally in passive assets between FY20 and FY23.

However, the situation changed after that. Investors (including retail and HNI) became more selective. They saw alpha being created through small cap funds, mid-cap funds, and thematic funds. In addition, some of the allocation funds like multi-cap funds and flexi-cap funds combined the best of large cap stability and mid-cap aggression. This again turned the tide in favour of active funds and, not surprisingly, the active flows gravitated towards such alpha funds and allocation funds. As the share of active AUM started picking up after 2023, the share of passive funds stagnated. They were growing in AUM terms but they were not garnering higher market share. That was the crux of the problem.

PASSIVE FUNDS – A PROBLEM OF DEMAND AND SUPPLY

To be fair, passive funds had a problem of demand as well as of supply. Let us look at the demand side first. The Nifty and Sensex funds came as a proxy for the large cap funds, as they gave similar returns with lower fees. However, post 2023, the best of index returns was already done and dusted. The market became a lot more stock-specific and that is where the demand gravitated towards. Investors were not interested in macro stories, when micro stories like defence, alternate energy, outsourcing, CDMO etc could really deliver the goods.

Let us turn to the supply side. One reason for the slowdown in passive fund demand is the lack of adequate supply. Indian mutual funds are still tightly regulated and the scope for using passive to create innovative structures is quite limited. That is still limited to the PMS and AIF clients. However, things now appear to be changing. Reliance Jio will essentially promote passive products in India, as will Zerodha. There is also State Street First which entering the passive space through a JV at IFSC. Now we can expect better quality supply.

WHAT WAS THE PASSIVE ETF STORY IN H1FY26?

Here are key highlights of the passive ETF story in H1FY26. Let us first look at the passive index ETF story.

• Out of the total passive ETF AUM of ₹9.56 Trillion, 76.6% was accounted for by equity ETFs, 10.0% by debt ETFs, 9.4% by gold ETFs and silver ETFs at 3.9%. In H1FY26, gold and silver ETFs have grown AUM at the cost of equity ETFs and debt ETFs.
• There were 282 ETFs in India, listed on the NSE. Out of these 207 equity ETFs tracked 90 equity indices, while 37 debt ETFs tracked a total of 14 indices.
• For H1FY26, net ETF flows were ₹43,830 Crore. This included ETF mobilizations of ₹1,21,786 Crore and ETF redemptions of ₹77,926 Crore.
• Total ETF trading volumes in H1FY26 stood at ₹3,29,449 Crore; which is over 86% of the total ETF trading volumes in the full financial year FY25.

A quick word on the new ETFs launched in Q2FY26. They broadly included EV & New Age Automotive ETFs, Defence ETFs, Oil & Gas ETFs, and silver ETFs; other than generic index ETFs. Let us now turn to the story of passive index funds.

WHAT WAS THE PASSIVE INDEX FUNDS STORY IN H1FY26?

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 ₹3.09 Trillion, 65.0% was accounted for by equity ETFs, while the balance 35.0% was accounted for by debt ETFs.
• There were of 344 index funds in India as of September 2025. Out of these, 235 equity index funds tracked 83 indices, while 109 debt index funds tracked a total of 81 indices.
• For FY25, net index fund flows were ₹9,116 Crore. This includes index fund mobilizations of ₹51,481 Crore and index fund redemptions of ₹42,365 Crore.

Growth has been a lot more robust in ETFs than in index funds, due to its listing and lower cost advantages.

CREATING A PASSIVE INVESTING NARRATIVE IN INDIA

There are several steps required to boost passive narrative in India.

• Once there is adequate supply, demand will follow. Supply is expected to improve with dedicated names like Jio Blackrock, Zerodha, and State Street in this business.
• Investors need to understand passive as a part of their allocation. For instance, portfolio rebalancing and hedging can be done very effectively using passive funds / ETFs.
• India needs a wider array of smart indices that actually cater to unique needs. Currently, most of the indices are largely overlapping and unique advantage is missing.

Globally, passive is more than 60%. Warren Buffett himself commended John Bogle of Vanguard in his 2016 Letter to Shareholders for having saving billions of dollars of cost to retail investors. That is the sort of thinking that has to sink into Indian investors!