After net inflows into passive schemes more than doubled in the last financial year, the enthusiasm towards that category has slightly moderated in FY26 so far, indicating that investors have started looking for higher than market returns by putting money in actively-managed funds.
According to data from Association of Mutual Funds in India (AMFI), passive schemes, including index funds, gold ETFs, and other ETFs garnered net inflow worth Rs 83,005.64 crore in FY26 so far, 17% lower than Rs 99,820.05 crore during April-October of the last financial year.
New fund offers also record decline
Funds mobilised through new fund offers of passive funds have also decreased significantly from 80 launches during the last year period raising Rs 10,173 crore to the same number of launches raising only Rs 3,712 crore in April-October of this year.
Sandeep Bagla, CEO of TRUST Mutual Fund believes that this is because do-it-yourself investors have stayed away in this period because of tepid market returns. “Lump-sum investment is not happening, the money is coming from either SIPs or NFOs, both of which are push products,” he said and added that this trend shows that SIP investors continue to seek alpha-seeking schemes.
What did Motilal Oswal say?
A recent Motilal Oswal report attributed this fall to base effects and rotation toward active categories like flexi-cap and mid-cap funds. “Nonetheless, the long-term outlook for passives remains strong, supported by rising investor comfort with low-cost, benchmark-linked products, expanding offerings, and growing institutional adoption,” it said.
FY25 emerged as a breakout year for the passive segment as net inflows more than doubled driven by a 278%/59% surge in Index/ETF flows.
It highlighted that institutional catalysts such as the EPFO, which allocated nearly 10% (Mar’24) of its corpus to ETFs (allowed 5-15%), alongside Corporate (~86%/~37% share in ETFs/Index AUM mix as of Sep’25) and HNIs’ (~12%/~39%) institutionalizing passive allocations, are reinforcing the depth and sustainability of this trend.
However, retail participation remains the missing piece (~3%/~23% share in ETFs/Index AUM mix – Sep’25), constrained by low distributor incentives and limited awareness, though digital platforms are beginning to narrow this gap, the report said.
It added that the share of ETFs in retail total AUM is a meager 2.5% as of Sep’25, as the Indian retail MF industry is highly dependent on the push model, wherein MFDs play an integral part in distribution. “With commissions to distributors on Equity schemes being much higher, the preference for distributing ETFs is much lower,” it said.