Key Points

Around 76 per cent of retail mutual fund investors are aware of index funds or ETFs, with 68 per cent holding at least one passive product in 2025, an increase from approximately 61 per cent in 2023, the report from Motilal Oswal Mutual Fund said.

The broking house said that despite this improvement in reception, about one-third of investors remain outside the passive mutual fund universe, citing higher confidence in active funds or unfamiliarity with passive products.

Approximately 54 per cent of investors cited low costs, 46 per cent mentioned diversification, 46 per cent mentioned simplicity and transparency, and 29 per cent chose performance as a deciding factor when choosing passive funds.

Distributors demonstrated strong traction, with 93 per cent indicating an understanding of passive funds. Approximately 70 per cent incorporate them into client portfolios, and most intend to increase passive allocations by at least 5 per cent in fiscal 2026.

Distributors reported that they primarily selected passive funds based on tracking error and expense ratio. "Awareness is no longer limited to broad-based index solutions, as investors are increasingly accepting factor-based funds and innovative passive strategies,” said Pratik Oswal, Chief of Passive Business at Motilal Oswal AMC.

Among passive investors, more than half (57 per cent) currently hold one to three passive funds, and about 17 per cent own more than five funds. In terms of product preferences, 49 per cent invest in both index funds and ETFs, 34 per cent only in index funds, and 16 per cent only in ETFs, the report noted.

- IANS