Index fund folios rise 13 times in four years, HNIs major buyers: Report

India’s mutual fund market is undergoing a marked transition as passives gain ground over active strategies. According to report by Motilal Oswal, index fund folios surged 13 times, and ETF folios jumped 6.2 times over Sep’21-Sep’25— highlighting broader adoption of passives among affluent investors who earlier preferred only actively managed funds.

The spike in ETF folios, especially from FY23–25, shows that HNIs are now using ETFs as tactical and liquidity tools.

The QAAUM share of ETFs and Index Funds climbed to around 17.1 per cent by September 2025 (up from 7 per cent in FY20), signalling a structural shift. Many newly launched products, combined with rising investor awareness of low-cost and benchmark-linked funds, have helped propel the momentum. This trend underscores how passives can appeal to both retail investors and large corporate treasuries seeking stable, cost-effective allocations.

During the period from September 2021 to September 2025, India’s exchange-traded funds logged an annual growth rate of 28 per cent, while Index Funds soared by 81 per cent—significantly outpacing the 28 per cent seen in total equity, said the Motilal Oswal report.

In FY25 alone, net inflows to passive funds more than doubled, achieving a 118 per cent year-on-year surge. This upward trend was triggered by a 278 per cent rise in Index Fund flows and a 59 per cent expansion in ETFs, emphasising investors’ growing focus on low-cost portfolios.

High-net-worth individuals (HNIs) have notably embraced the index funds segment, viewing them as tactical and liquidity tools for rapid market adjustments. Between September 2021 and September 2025, their passive AUM climbed at a robust 63 per cent compound annual growth rate, underscoring the shifting preference away from more expensive active funds.

Meanwhile, corporate treasuries have also strengthened their positions in passives, attracted by predictable performance and straightforward execution. Folio counts in ETFs and Index Funds soared, reflecting heightened interest among a diverse range of investors.

Corporate allocations remain paramount, with around 85.8 per cent of ETF assets originating from corporate treasuries, followed by HNIs at 11.5 per cent and retail investors at 2.5 per cent. This distribution reveals sustained corporate engagement in passive strategies, as these institutions harness ETFs and Index Funds for strategic liquidity and reduced expense burdens. Assessments of folio patterns also reveal consistent growth; both total folios and average assets per folio reflect ongoing affinity for streamlined, benchmark-focused investments that can weather shifting market conditions.

So far in FY26 (April to October 2025), passive flows dipped by 34 per cent, accompanied by an 8 per cent drop in overall equity funds. Sector experts, however, attribute much of this to rotation towards active mid-cap and flexi-cap offerings. With India’s passive penetration still lingering around 17.1 per cent—well shy of developed-market levels—many see ample scope for further expansion. The convenience and cost-effectiveness of index-linked products continue to resonate, positioning passives as a compelling choice for diverse investor segments in the long run.