Momentum Builds in India's Passive Funds Despite Market Flux

Passive funds in India reached Rs 14.77 lakh crore in May 2026, driven by equity inflows, despite net industry outflows of Rs 402 crore. While equity ETFs and index funds attracted significant investments, market volatility and debt fund withdrawals impacted overall AUM. Tax relief for FPIs could boost future inflows.

India's passive funds recorded an increase in assets under management (AUM), reaching Rs 14.77 lakh crore in May 2026, as revealed by the NSE Nifty Passive Insight report, despite the industry experiencing net outflows of Rs 402 crore.

The report indicates a significant upturn in passive equity funds, which were primarily responsible for this growth, garnering net inflows of Rs 9,488 crore over the period. Equity ETFs absorbed Rs 6,692 crore, and equity index funds saw inflows of Rs 2,796 crore, indicating a sustained investor interest in equity-based passive products.

However, market volatility mitigated the effects of these inflows on overall assets. Equity ETF AUM dipped to Rs 7.81 lakh crore, from Rs 7.85 lakh crore recorded in April, as market losses neutralized the fresh investments. Meanwhile, debt passive funds experienced substantial net outflows totaling Rs 7,037 crore, with debt ETFs accounting for Rs 5,179 crore in withdrawals, reducing their AUM to Rs 0.93 lakh crore from Rs 0.98 lakh crore in the preceding month.

Debt index funds also saw withdrawals of Rs 1,858 crore, reducing their AUM to Rs 0.95 lakh crore. The report suggests these developments signify short-term pressures, but anticipates that tax reliefs for FPIs investing in government securities may enhance post-tax returns and support future inflows. Commodity passive funds witnessed outflows of Rs 2,858 crore, with silver and gold ETFs experiencing withdrawals, although rising prices helped elevate the AUM for these commodities to Rs 0.86 lakh crore and Rs 1.85 lakh crore, respectively.

May saw a slight decline in passive investor folios, reducing to 5.47 crore from 5.48 crore in April. However, the industry unveiled 12 new passive schemes during the month, half of which were ETFs and the remaining half index funds, bringing the total passive schemes up to 701. A stable AUM, coupled with new products and unwavering investor participation, underscores the increasing relevance of passive investing in the Indian market landscape.