Passive Funds: A Key to Expanding India’s Mutual Fund Investor Base

India’s mutual fund industry has experienced extraordinary growth, expanding sevenfold over the past decade to ₹74.40 lakh crore in assets under management (AUM) at the end of June 2025. This growth is a testament to increasing investor confidence in mutual funds as a financial instrument for savings and goal planning. However, despite this surge, the investor base remains heavily concentrated. Equity funds dominate, making up 59.94 per cent of the AUM, followed by debt (26.53 per cent) and hybrid (8.28 per cent) funds. India’s AUM-to-GDP ratio stands at just 20 per cent as of March 2025, well below the global average of 75 per cent, suggesting significant untapped potential in the sector.[EasyDNNnews:PaidContentStart]

Geographically too, 82 per cent of the AUM is concentrated in the top 30 cities (T-30), with the remaining 18 per cent coming from the beyond-30 (B-30) cities. This concentration reflects the urban bias of the industry, where cities like Mumbai, Delhi, Bengaluru, and Chennai benefit from higher financial literacy and better infrastructure.

The growing popularity of passive investing is a promising development for the Indian mutual fund landscape. Passive funds now represent 17 per cent of the industry’s AUM, with ₹36,000 crore in net inflows, particularly in Large-Cap equity funds. Passive strategies, which track broad market indices, offer cost-efficient, market-aligned returns, making them an attractive option for both new and seasoned investors. These funds are ideal for beginners as they provide simplicity, low fees, and steady long-term growth without the need for active management. This can be a stepping stone for more complex and actively managed funds.

As the mutual fund industry evolves, passive investing is poised to help diversify and increase the investor base, encouraging wider participation beyond top-tier cities. For new investors, it offers an accessible and effective way to build resilient portfolios and take advantage of India’s growing economy.

Shashikant Singh
Executive Editor

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