India poised for US-like passive investing boom: Angel One

India's mutual fund space has witnessed a major shift towards passive investing. Investors are pouring money into the  passive products which are rapidly gaining prominence across the mutual fund landscape.

Hemen Bhatia, ED & CEO, Angel One AMC, breaks down the structural shift toward passive investing in India. From SEBI’s regulatory reforms to the rise of Smart Beta strategies, he explains why the Indian market may be on a trajectory similar to the US and how a passive-only model positions Angel One AMC for the next phase of industry growth. With investors increasingly prioritizing transparency, lower costs, and rule-based approaches, passive products are rapidly gaining prominence across the mutual fund landscape.

Q. Over the past few years’ passive products have gained popularity with investors, what according to you are the key reasons for this?

A. The growing popularity of passive products can be attributed to both regulatory and structural factors. On the regulatory front, SEBI’s scheme rationalisation in 2017 and the move to benchmark active schemes against the Total Return Index (TRI)—which includes dividends—brought in much-needed standardisation and transparency. Earlier, fund houses had their own definitions for large-, mid-, and small-cap schemes, and many benchmarked against price return indices (excluding dividends). This often created the illusion of alpha generation. 

Following SEBI’s reforms, the definitions of market segments were standardised and TRI-based benchmarking became mandatory. Naturally, once performance measurement became more accurate, many of the earlier 'false alphas' disappeared. Structurally, Indian markets have also become far more informationally efficient, thanks to the growing number of professional active managers and greater financial inclusion. With information now widely and instantly available, it’s increasingly difficult for any single manager to consistently outperform the market. Overtime, this has reflected clearly in the data—most active schemes across mutual funds,PMS, and AIF categories have struggled to consistently beat their benchmarks. This trend has driven investors toward index funds and ETFs, which offer simplicity, transparency,and lower costs.

Q. Do you foresee a US like situation for the Indian MF landscape, where passive market share will increase manifold from where it is currently?

A. It’s interesting when people say passive works in the US but not in India—as if the principles of investing differ by geography. That’s like saying the telephone works only in the West because it was invented there, or that gravity doesn’t apply in India because Newton discovered it!If we look at the data, India’s passive mutual fund industry has grown impressively—from around Rs 14,000 crore in March 2015 to about Rs 13 lakh crore by October 2025.During the same period, its share in total MF AUM rose from 1.3% to 16.7% (Source: AMFI). As our markets evolve and competition among active managers intensifies, consistent alpha generation becomes even more challenging. Larger fund sizes make it harder to deploy capital efficiently, while thousands of other institutional players—MFs, PMS, AIFs, insurance companies, family offices, FPIs—are also competing for the same outperforming stocks. Unfortunately, no one has a 'crystal ball' to predict future alpha. The same structural realities that drove passive growth in the US are now visible in India. Hence, I strongly believe the Indian market is on a similar trajectory.

Q. There is always a debate about which is a better passive vehicle for the investor – ETF or Index Fund, what are your views on this?

A. Both ETFs and Index Funds are built on the same passive investing philosophy—they’re like two rivers flowing from the same glacier. The underlying portfolios are identical if they track the same index. For instance, a Nifty Total Market ETF and a Nifty Total Market Index Fund will hold the same securities.The key difference lies in how they’re traded. ETFs are listed on stock exchanges and can be bought or sold in real time, whereas index funds are priced at the end-of-day NAV. So,investors comfortable with intraday trading can choose ETFs, while those preferring a simple, day-end process may opt for index funds.What matters more is whether investors’ active funds are consistently outperforming their benchmarks. The “ETF vs Index Fund” debate is often overstated—it’s not a civil war within passive investing, but a matter of personal preference and convenience.

Q. As a passive only AMC, Angel One AMC has a unique market stance. What inspired this direction, especially at a time when the passive segment in India is growing rapidly?How do you see passive investing scaling ahead?

A. At Angel One AMC, we consciously chose to be a passive-only asset manager because we believe in the clarity and conviction that comes from following a single investment philosophy. Our core team has one of the longest collective experiences in passive investing in India, which gives us a deep understanding of how this space works. In our view, an AMC offering both active and passive products risks confusing investors—because the two philosophies are fundamentally opposite.It’s like a clinic promoting both allopathy and homeopathy at once; it leaves the end user perplexed. Passive investing requires consistent and unapologetic investor education,and our goal is to make index-based products accessible to a wider audience through low-cost, easy-to-understand, and scalable solutions—especially through digital channels.

As active fund sizes continue to grow, finding alpha will only become more difficult due to market efficiency and competition. This is why, globally, the largest MF schemes are passive in nature. In fact, even in India, the largest mutual fund scheme today is a passive ETF. These are some of the key reasons we decided to dedicate ourselves entirely to passive investing.

Q. Do you believe that Smart Beta investing can be a replacement for traditional active asset management?

A. Absolutely. Smart Beta strategies have the potential to be a strong alternative to traditional active management. Smart Beta follows a rule-based approach, using factors like momentum, quality, low volatility, value, and dividend yield—either individually or in combination—to build portfolios. 

Because it’s systematic and data-driven, it eliminates human subjectivity and behavioural biases that even the most experienced fund managers are prone to.These strategies apply the same methodology regardless of market conditions, ensuring consistency and transparency. 

In fact, historical data shows that many Smart Beta strategies have outperformed traditional active approaches over time.We advocate a core-and-satellite allocation framework—using traditional market-cap weighted passive strategies as the core and Smart Beta strategies as the satellite. This combination offers both stability and enhanced return potential, while keeping costs and biases in check.