FOMO pushes investors to passive funds, doubling growth of active schemes in September

Passive funds grew 2X compared to active funds as per AMFI data for September 2025. Experts say the surge is due to FOMO among investors driven largely by return chasing and accessibility rather than a structural reallocation. Passive schemes, including index funds and ETFs, added around 1.2 million new accounts in September. When FoF schemes investing in passive portfolios are included, the number rises to 2.1 million new accounts. By comparison, active equity schemes saw 1.4 million new folios over the same period. Active equity funds remain dominant with about 175 million folios, nearly 70% of the industry’s total of 252 million folios.

The rise in passive folios was propelled primarily by precious metal ETFs. Gold and silver ETFs alone added about one million new accounts in September as prices for both metals surged sharply, prompting retail investors to seek quick exposure. For many, physical gold purchases have become increasingly expensive, particularly during the festive season when demand is traditionally strong. ETFs, by contrast, allow investors to participate with smaller ticket sizes, requiring only a demat account and offering the convenience of digital holding, according to experts.

According to Kalpen Parekh, MD and CEO of DSP Mutual Fund, the trend is fundamentally about investors reacting to recent performance. “This has got nothing to do with active or passive investing. It is a rush for hot asset classes. Gold and silver have run up by 40 to 60 per cent. It is classic human behaviour to be lured by fast-moving asset classes,” he said. Parekh added that while DSP introduced gold and silver funds three years ago to help investors gain early exposure, the fund house is currently advising caution. “Investors must know gold and silver have seen periods of zero to negative returns like stocks. If they do not have gold, then it is fair to have about 10 per cent in gold as part of asset allocation and a better way to build that is via SIP,” he said.

The sentiment-driven nature of the shift was echoed by Akhil Chaturvedi, Executive Director and Chief Business Officer at Motilal Oswal MF, who said the steep rally in precious metals had triggered allocation changes. “The stupendous rise in the prices of gold and silver has pushed investors to shift their allocation. There is FOMO and people do not want to lose future return opportunities,” he said. However, he does not expect the move to significantly dent equity flows. “Equities will continue to grow steadily. Some allocation may shift temporarily, although much depends on how prices move from here. Investors should remain balanced and not overload on assets that have seen sharp upswings in a short time. There is always the possibility of reversals,” he added.

Sandeep Bagla, CEO of Trust Mutual Fund, described the trend as a familiar pattern of recency bias. “The recent surge in gold and silver is purely due to FOMO. Momentum in precious metals is attracting investor interest,” he said. Bagla noted that rising equity participation remains a long-term structural theme. “People have realised that participating in India’s growth story means being invested in equities. Short-term outperformance in another asset class may slow equity inflows briefly, although overall equity allocation will continue to rise,” he said.

On the ground, distributors confirm heightened client interest in commodity-based ETFs, although say it remains mostly tactical. Pune advisor Shifali Satsangee of Funds Ve’daa said the rise in metal ETF investments is being positioned as part of short-term allocation, not core portfolios. “We look at precious metals ETF investing as a part of tactical allocation. We define a maximum 10 to 15% allocation for such exposure. Metals are more sensitive to macroeconomic conditions, so multi-asset funds often work better for conservative investors,” she said.

Akta Sehgal, Founder of Manas Wealth, pointed out that affordability and accessibility have been key triggers. “Physical gold has become expensive. ETFs allow small contributions while still feeling part of the rally,” she said. She emphasised that the shift is sentiment driven and temporary. “Once prices correct, enthusiasm will cool. Our approach has always been balanced allocation, not chasing whichever asset is running,” she added.

While the September data marks a significant milestone for passives, industry participants broadly agree that the trend does not indicate a long-term decline in active equity dominance. It reflects a momentary, momentum-led rotation prompted by sharp rallies, accessibility of ETF structures, and festive sentiment. Whether investors stay invested once volatility returns or exit as quickly as they entered will determine whether this marks the beginning of a lasting shift or simply a temporary detour in India’s equity-led wealth creation journey.