Index funds surge in India's passive investing landscape

Index funds have captured an increasingly larger slice of India's growing passive investment market, with their share of passive assets under management climbing to 22.4 per cent as of March 2026, according to latest market data. The expansion marks a significant shift from just five years earlier, when index funds accounted for only 6.2 per cent of passive AUM in March 2021, representing a more than threefold increase over the period.

The surge in index fund popularity reflects evolving investor preferences and growing awareness of passive investment strategies among Indian retail investors. Index funds, which track market benchmarks and offer lower cost exposure to equities, have proven increasingly attractive as alternatives to actively managed portfolios. The growth has coincided with broader global trends toward passive investing and cost-conscious portfolio construction.

Despite their rapid gains, index funds remain secondary to exchange-traded funds in India's passive fund ecosystem. ETFs continue to dominate the market with a 65.1 per cent share of passive AUM as of March 2026, though this represents a decline from their earlier commanding position. The gradual shift in market composition suggests both vehicle types will continue playing distinct roles in catering to different investor segments and investment preferences.

Industry analysts attribute the index fund momentum to increased investor education, competitive fee structures, and simplified access through mutual fund platforms. The trend underscores India's maturing investment landscape and the growing sophistication of retail participation in capital markets.