How to pick the right index fund: Mirae Asset’s Siddharth Srivastava explains
An investor should check the expense ratio, track error, and tracking difference to select the index fund
- Oct 30, 2025,
- Updated Oct 30, 2025 12:33 PM IST
As passive investing gains momentum in India, more investors are looking at index funds as a simple, transparent, and low-cost way to participate in the market. From just Rs 12,000 crore five years ago, the assets under management (AUM) of index funds have soared to over Rs 3 lakh crore at present, reflecting the growing preference for passive strategies. In this interaction, Siddharth Srivastava, Head-ETF Product and Fund Manager, Mirae Asset Investment Managers (India), shares insights on what’s driving this rapid rise, how investors can choose the right index funds, and what the future holds for passive investing in India. Edited excerpts:
BT: How has investor awareness evolved over the last few years when it comes to understanding and adopting index funds?
Srivastava: Index funds have come a long way and have seen a remarkable growth in India. As of August 2025, the AUM for passive funds, including ETFs, have risen to Rs 12.5 lakh crore. The rise is driven by conversion around underperformance of active funds v/s benchmark, product innovation, cost efficiency, transparency and growing investor awareness. The increasing use of digital platforms, expanding product range across equity and debt, has further accelerated this shift.
BT: What are the key factors an investor should evaluate before selecting an index fund?
Srivastava: First and foremost, investors should decide whether the underlying index methodology and intent meets his or her investment objective and risk profile. In case of exotic products, investors should especially check how the index has performed in different market cycles and what the portfolio composition is. Once the investor has shortlisted the desired options, the investor should check the expense ratio, tracking error, and tracking difference to select the index fund.
BT: Passive funds currently make up around 16% of total mutual fund AUM. How high do you expect this share to go in the next five years?
Srivastava: We believe the passive segment has significant growth potential. It is difficult to pin down the AUM figure after 5 years, as there are a lot of tailwinds, what we can say with relative assurance is that the growth in passive, including index funds and ETFs, is more likely to be exponential than linear. The share of passive assets in total mutual fund AUM will rise further driven by product transparency, alpha generation becoming increasingly difficult across segments, cost advantages, wider adoption by institutional as well as retail investors, rise of DIY investing, and product innovation.
BT: How should investors decide which parts of their portfolio to allocate to passive funds versus active funds?
Srivastava: We suggest that investors should focus on creating a robust overall portfolio using a mix of active and passive funds. Passive funds can provide low-cost options to take exposure in market-cap segments and other basic sectors and themes. Additionally, due to product innovation, they can also provide differential and unique options in select strategies and niche themes. Within the market cap segment, we prefer multi-cap or total market cap options for core investment from a long-term point of view.
BT: For short-term goals, would you recommend index funds, or are they better suited for long-term wealth creation?
Srivastava: Index funds are no different than your actively managed funds from an investment horizon perspective, so the longer the investment horizon, the better it is, especially for a core portfolio. Index funds can also be used for tactical allocation in select segments and sectors, depending upon market opportunities.
As passive investing gains momentum in India, more investors are looking at index funds as a simple, transparent, and low-cost way to participate in the market. From just Rs 12,000 crore five years ago, the assets under management (AUM) of index funds have soared to over Rs 3 lakh crore at present, reflecting the growing preference for passive strategies. In this interaction, Siddharth Srivastava, Head-ETF Product and Fund Manager, Mirae Asset Investment Managers (India), shares insights on what’s driving this rapid rise, how investors can choose the right index funds, and what the future holds for passive investing in India. Edited excerpts:
BT: How has investor awareness evolved over the last few years when it comes to understanding and adopting index funds?
Srivastava: Index funds have come a long way and have seen a remarkable growth in India. As of August 2025, the AUM for passive funds, including ETFs, have risen to Rs 12.5 lakh crore. The rise is driven by conversion around underperformance of active funds v/s benchmark, product innovation, cost efficiency, transparency and growing investor awareness. The increasing use of digital platforms, expanding product range across equity and debt, has further accelerated this shift.
BT: What are the key factors an investor should evaluate before selecting an index fund?
Srivastava: First and foremost, investors should decide whether the underlying index methodology and intent meets his or her investment objective and risk profile. In case of exotic products, investors should especially check how the index has performed in different market cycles and what the portfolio composition is. Once the investor has shortlisted the desired options, the investor should check the expense ratio, tracking error, and tracking difference to select the index fund.
BT: Passive funds currently make up around 16% of total mutual fund AUM. How high do you expect this share to go in the next five years?
Srivastava: We believe the passive segment has significant growth potential. It is difficult to pin down the AUM figure after 5 years, as there are a lot of tailwinds, what we can say with relative assurance is that the growth in passive, including index funds and ETFs, is more likely to be exponential than linear. The share of passive assets in total mutual fund AUM will rise further driven by product transparency, alpha generation becoming increasingly difficult across segments, cost advantages, wider adoption by institutional as well as retail investors, rise of DIY investing, and product innovation.
BT: How should investors decide which parts of their portfolio to allocate to passive funds versus active funds?
Srivastava: We suggest that investors should focus on creating a robust overall portfolio using a mix of active and passive funds. Passive funds can provide low-cost options to take exposure in market-cap segments and other basic sectors and themes. Additionally, due to product innovation, they can also provide differential and unique options in select strategies and niche themes. Within the market cap segment, we prefer multi-cap or total market cap options for core investment from a long-term point of view.
BT: For short-term goals, would you recommend index funds, or are they better suited for long-term wealth creation?
Srivastava: Index funds are no different than your actively managed funds from an investment horizon perspective, so the longer the investment horizon, the better it is, especially for a core portfolio. Index funds can also be used for tactical allocation in select segments and sectors, depending upon market opportunities.