Investor shift to gold ETFs and index-based passive funds pushes AUM up 21%

The Indian mutual fund landscape has witnessed a decisive shift toward passive investing, with bullion ETFs and index-based funds emerging as the key drivers. In the last one year, passive funds have delivered higher returns than actively managed equity funds, supported by strong inflows and improved cost efficiency.

According to industry data, the Assets Under Management (AUM) of passive funds jumped 21% in the last month alone, rising to ₹13.67 lakh crore from ₹11.30 lakh crore a year ago.

This surge highlights a sharp investor preference for low-cost, rule-based, and inflation-hedging investment tools such as gold ETFs, silver ETFs, and multi-asset passive funds.

 

Bullion ETFs Lead the Charge

Gold, which has been on a multi-year uptrend driven by global uncertainty, geopolitical tension, and foreign central bank purchases, has attracted record inflows into ETFs.

Key Numbers

• Gold ETF inflows surged to ₹7,743 crore, up from ₹1,257 crore a year earlier.
• Gold ETF AUM more than doubled to ₹1.02 lakh crore (₹44,245 crore previously).
• Investor demand was particularly strong when gold prices corrected in recent weeks, presenting a strategic accumulation opportunity.

According to DP Singh, Deputy MD, SBI Funds Management, interest in gold and silver has been pivotal in lifting passive fund flows. While bullion prices have moderated recently, long-term demand remains intact.

 

???? Why Passive Funds Are Gaining Ground

Several structural factors have contributed to the growing dominance of passive investing in India:

1. Market efficiency makes “alpha” harder

With millions of investors, faster information flows, and algorithm-driven markets, consistently beating benchmarks has become difficult.

2. SEBI reclassification brought transparency

Standardised categories and tighter rules have reduced excessive risk-taking by active funds, thereby lowering alpha opportunities.

3. Investor awareness is rising

Digital platforms and low-cost brokerage apps are helping new investors understand ETFs, index funds, and passive allocation models.

4. Attractive hedging via gold & multi-asset passive funds

Bullion ETFs provide both diversification and inflation protection, crucial during volatile market phases.

 

Expert Views

???? “Equity market efficiency has made alpha generation increasingly challenging.”

— Vikash Wadekar, Head – Passive Business, Axis AMC

???? “Digital platforms are playing a pivotal role in onboarding new ETF investors as part of long-term portfolios.”

— Hemen Bhatia, CEO, Angel One AMC

???? “Short-term underperformance of active funds is linked to the sideways market of the year. Conditions may improve as foreign inflows return.”

— N. ArunaGiri, CEO, TrustLine Holdings

 

Active Funds Lag Behind

While passive fund AUM jumped 21%, actively managed equity funds recorded only a 16% rise in AUM during the same period.

Even more telling:

• Inflows into active equity MFs plunged 31% (from ₹35,943 crore to ₹24,690 crore).
• In contrast, passive fund inflows jumped multi-fold to ₹16,668 crore (from ₹7,061 crore).

This widening gap shows a deepening shift as investors embrace cost-effective, transparent, and stable passive strategies over stock-picking-based equity funds.

 

Finacare Insight: What Should Retail Investors Do Now?

Passive funds—especially bullion ETFs, index funds, and multi-asset ETFs—are emerging as core building blocks of long-term portfolios.

???? When should you prefer passive funds?

• When markets are volatile or directionless
• When you want predictable index-linked returns
• When you prefer low-cost investing
• When you seek inflation hedge through gold
• When you want diversification without complexity

???? When active funds may become attractive again:

• During strong bull markets
• When small-cap and mid-cap cycles pick up
• When skilled fund managers gain an edge from market mispricing

For now, market experts expect stronger inflows early next year, supported by a US rate-cut cycle and recovery in global risk sentiment.

 

Final Thoughts

The impressive growth of passive funds—particularly bullion ETFs—signals a maturing Indian investment landscape where cost transparency, stability, and long-term planning are taking center stage.

At Finacare, we believe that a balanced portfolio with passive funds at the core and selective active exposure provides the strongest foundation for wealth creation in the years ahead.