Passive funds are becoming mainstream in India. 76% of surveyed mutual fund investors are aware of Index Funds or ETFs in 2025, and 68% investors have invested in at least one passive fund in 2025, up from 61% adoption in 2023, a Motilal Oswal Mutual Fund survey said here on Monday.

However, even with this adoption growth, one-third of investors remain outside, citing higher confidence in active funds or unfamiliarity with passive products.

The survey, conducted in August-September 2025, captures insights through the lens of 3000+ investors and 120+ distributors, including MF distributors, RIAs, and wealth managers across India. The passive industry AUM stood at Rs 12.2 lakh crore, a 6.4-fold increase in six years (36% CAGR), from Rs 1.91 lakh crore in 2019. In just over two years since March 2023, AUM has grown 1.7 times (26% CAGR), underscoring the accelerating adoption.

Investors cited low costs (54%), diversification (46%), simplicity and transparency (46%), and performance (29%) as key factors when selecting passive funds.

The distributor survey reflects similar traction with 93% of surveyed distributors understanding passive funds of which 46% demonstrate deep knowledge and 70% include them in their clients’ portfolios. Most distributors (93%) plan to further increase passive allocation by at least 5% in FY25-26. At present, 70% of their clients hold fewer than three passive funds, indicating that passive exposure plays a satellite role in portfolios.

When choosing passive funds, investors emphasized (54%), diversification (46%), simplicity and transparency (46%), and performance (29%).