The assets under management (AUM) for passive mutual funds in India have seen substantial growth, increasing from ₹6.64 lakh crore in February 2023 to ₹15.24 lakh crore by February 2026, according to the Association of Mutual Funds in India (AMFI). However, this growth represents only 18.6% of the total mutual fund AUM, a modest increase from 16.8% in 2023. The limited market share raises questions about the factors inhibiting the growth of passive funds in India.

One major issue is the lack of awareness among individual investors, with nearly 80% of passive fund AUM held by corporate investors. Many retail investors remain unaware of the benefits of passive funds, including lower expense ratios and reduced risk of underperformance compared to actively managed funds. Additionally, there is a prevailing optimism among investors that actively managed funds will outperform benchmarks, despite evidence that over 50% of these funds fail to do so.

Moreover, the structure of mutual fund distribution incentivizes active fund investments, as higher fees associated with these funds provide better compensation for distributors. To enhance the market share of passive funds, stakeholders may need to rethink the incentive structures and improve financial literacy among investors. Overall, a balanced approach that includes both active and passive funds could better serve investors' needs for wealth accumulation and risk management.