With Investors Wary Of Volatility, Passive Funds Come Of Age | Open Interest

As markets turned volatile in the second half of the financial year gone by and regulators tightened cash and derivative market regulations to curb speculation, there has been a noticeable shift of investors towards passive funds, particularly in the index and other ETF categories.

Mutual funds have successfully increased their unique investor count to 5.42 crore by the end of March 2025—a 22% jump over the previous year. In the last financial year, mutual funds added 97 lakh new investors, with the peak inflow of new investors occurring in July 2025, coinciding with the market’s peak. Subsequently, monthly additions have declined. However, the new class of investors has leveraged passive funds to navigate the market’s volatility.

The number of folios has more than doubled, rising from 1.59 crore in March 2023 to 3.31 crore by March 2025. A significant portion of this growth occurred in FY24-25, with 1.2 crore new folios being added, as per AMFI data.

As markets turned volatile in the second half of the financial year gone by and regulators tightened cash and derivative market regulations to curb speculation, there has been a noticeable shift of investors towards passive funds, particularly in the index and other ETF categories.

Mutual funds have successfully increased their unique investor count to 5.42 crore by the end of March 2025—a 22% jump over the previous year. In the last financial year, mutual funds added 97 lakh new investors, with the peak inflow of new investors occurring in July 2025, coinciding with the market’s peak. Subsequently, monthly additions have declined. However, the new class of investors has leveraged passive funds to navigate the market’s volatility.

The number of folios has more than doubled, rising from 1.59 crore in March 2023 to 3.31 crore by March 2025. A significant portion of this growth occurred in FY24-25, with 1.2 crore new folios being added, as per AMFI data.

The last financial year also witnessed 144 new scheme launches in index and other ETF categories. This expansion has pushed the average assets under management (AUM) from Rs 6.24 lakh crore in March 2023 to Rs 8.67 lakh crore in March 2024 and ₹10.30 lakh crore by March 2025. Passive funds now account for 20.8% of the total open-ended equity schemes as of March 2025.

The newly launched index funds and other ETFs collectively hold assets under management of Rs 16,400 crore. Globally, according to data from the Investment Company Institute, the AUM of passively managed funds has doubled over the past decade, accounting for 69% of total funds managed in 2025.

In FY24-25, schemes under the index fund and other ETF categories mobilised Rs 3.51 lakh crore—about 21.1% of the total funds mobilised by open-ended equity schemes. Net inflows into these schemes stood at Rs 1.27 lakh crore. Since the beginning of the current calendar year, mobilisation into these schemes has grown steadily month-on-month, with passive schemes accounting for 30% of total mobilisation. In March alone, passive funds represented 37.5% of total net inflows.

Passive funds are maturing in India as mutual fund investor counts reach an all-time high, the share of equity in overall AUM rises to over 61%, and mutual fund asset under management or AUM as a percentage of total bank deposits triples over the past decade to 29% in March 2025. With declining bank deposit rates, household savings are increasingly finding their way into passive funds, in anticipation of stable returns amidst volatile market conditions.

Of course, remember the age old saying. "Mutual funds are subject to market risks..."