Passive Funds See Record Growth Despite Declining AUM Share

Despite passive investing gaining traction, its share in mutual fund (MF) assets under management (AUM) fell to 16.6% by the end of 2024, down from 17.7% in March 2023. This decline occurred even as inflows, account additions, and new fund launches hit record levels during the year.

Smallcap and Midcap Outperformance Affects Passive Funds

Over the past 2 years, smallcap and midcap stocks have significantly outperformed largecaps. While the Nifty 50 rose 31% during this period, the Nifty Smallcap 100 and Nifty Midcap 100 surged by 93% and 82%, respectively. As a result, passive equity funds, which mostly track large-cap indices like the Nifty 50 and Sensex, delivered lower returns compared to active equity funds.

Shift Towards Active Smallcap and Midcap Funds

The strong performance of smallcap and midcap stocks led to record investments in active smallcap and midcap funds. These funds, along with thematic schemes, boosted the share of active equity funds in total MF AUM from 39% in March 2023 to 46% in December 2024, as per AMFI data.

Tax Changes Impact Passive Debt Funds

Changes in debt fund taxation in April 2023 removed the indexation benefit, reducing inflows into passive debt funds. The AUM of passive debt funds grew only 19%, from ₹1.7 trillion in March 2023 to ₹2 trillion by December 2024.

Record Inflows and Fund Launches Drive Passive Equity Growth

Passive equity funds continued to attract strong inflows, with net inflows reaching ₹1.3 trillion in 2024 compared to ₹71,404 crore in 2023. Passive equity AUM grew 38% in the first 11 months of 2024, reaching ₹8 trillion.

Surge in Fund Offerings Boosts Investor Accounts

The year 2024 saw a record 130 new passive fund launches, which more than doubled index fund accounts to 12.5 million, showcasing the growing interest in passive investing.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.