Passive investments surge in 2024: Index fund folios double, ETFs up 40%

Index fund folios double; nearly 40% jump in ETF accounts

Index funds and exchange-traded funds (ETFs) have added a record number of investment accounts in 2024, buoyed by the sectoral and thematic investing euphoria that has spilled into the passive space. 

 

Investment accounts, or folios, in index funds are on track to double during the ongoing calendar year, while folios in ETFs have already risen by 37 per cent, with December data still pending. Assets under management (AUM) in the passive investment segment surged 23 per cent to ~11 trillion during the 11 months ended November. 

 

Mutual fund executives and distributors attribute the rise in retail adoption of passive funds to several years of growing awareness, further amplified in 2024 by a flurry of fund launches. “Passive investing has been on a rise in India for some years now, as evident from the multi-fold growth in AUM in the past few years. The growing adoption got a boost in 2024 with the launch of several innovative ideas through the index fund and ETF route,” said Anand Vardarajan, chief business officer at Tata Asset Management. 

 

 

Fund houses have introduced 116 passive funds this year through November, many of which are industry-firsts, including funds tracking niche indices such as capital markets, tourism, real estate, electric vehicles and new-age automotive sectors. Sectoral and thematic funds, both active and passive, saw high demand in 2024, with active funds in this category securing the highest inflows and adding the most folios this year. 

 

In the passive space, differentiated offerings based on factor-based indices gained traction. These include indices such as Nifty MidSmallcap400 Momentum Quality 100, Nifty200 Alpha 30, Nifty500 Multicap Momentum Quality 50, and Nifty MidSmall Healthcare. 

 

“The number of new launches in the passive category has been huge,” said Mohit Gang, co-founder and CEO of Moneyfront. “Awareness is increasing, and many advisors are now recommending passive funds to clients. A lot of smart money, including from HNIs and family offices, is also shifting towards passives. The cost advantage of passives and the inconsistent performance of active funds have also been contributing factors,” he added. 

 

The growing range of passive offerings has ensured that some index funds consistently feature in the top quartile of performance charts. For instance, Nifty Alpha 50 and Nifty Next 50 are currently leading the one-year returns chart for large-cap funds. Past performance remains a critical factor for many investors when selecting funds. 

 

While institutional inflows, particularly from the Employees' Provident Fund Organisation (EPFO), have historically driven AUM growth in passive funds, the recent folio expansion indicates increasing penetration in the retail segment.  Industry observers point to systematic investment plan (SIP) data as evidence of this trend. SIP inflows into index funds, which first crossed the ~1,000-crore mark in July, stood at ~1,246 crore in November, accounting for 5 per cent of total SIP inflows last month.