Index funds are witnessing a significant rise in investor adoption, emerging as a preferred vehicle for long-term wealth creation. Their appeal lies in their low-cost structure, transparency, passive nature, and benchmark-aligned performance. As investors increasingly shift toward disciplined investing, index funds have carved out a central role in portfolios, especially amid evolving market dynamics.
According to the latest industry data:
- Index fund schemes have grown over 12x from 25 schemes in 2019 to 309 schemes in 2025, reflecting strong investor demand for passive investing. AMCs have responded by expanding beyond traditional benchmarks to include sectoral, thematic, ESG, smart beta, and international indices.
- The number of folios in index funds has grown nearly 20-fold, from 6.34 lakh in April 2020 to 131.42 lakh by April 2025. This reflects a growing investor preference for passive investment strategies.
- As of April 2025, index funds have become much more popular, with their assets under management (AUM) rising to ₹2.92 lakh crore, 14.3 times increase since April 2021. In contrast, active funds doubled during the same period. This sharp rise highlights the growing shift toward index investing in India.
- From April 2021 to April 2025, large-cap fund AUM grew 110% (₹1.78 lakh crore to ₹3.74 lakh crore), while index funds surged 1331% (₹20,426 crore to ₹2.92 lakh crore). The limited upside in large caps and growing investor awareness are fueling a clear shift toward index investing.
- In the last five years, the index fund has witnessed a rise of about 1195% in net Inflow from 4,578 crores in FY20-21 to 59,305 crores in FY24-25, reflecting heightened investor conviction amidst market volatility.
Beyond Market Sentiment: Structural Shifts Driving Growth
The impressive rise in index funds is not merely a by-product of market performance. Investors increasingly use them as a core allocation strategy rather than speculative or tactical bets.
Several factors fueling this structural shift:
- Cost-Effectiveness: Index funds typically carry much lower expense ratios than actively managed funds, making them attractive for cost-sensitive and long-term investors.
- Simplicity & Transparency: The passive nature of index funds makes them easy to understand and operate, appealing to both first-time investors and seasoned market participants.
- Growing Interest in Factor Investing: The rise of smart beta and factor-based index funds (e.g., value, momentum, low volatility) has made passive strategies more appealing by offering rule-based exposure to performance drivers typically associated with active funds.
With limited scope for outperformance in the large-cap segment, investors are increasingly preferring index funds over-active large-cap strategies for more consistent, low-cost market exposure.
The tide has turned- Index funds aren’t the alternative anymore
With explosive growth, rising investor trust, and unmatched simplicity, index funds have moved from the sidelines to the center stage. For retail investors, they offer a no-fuss, low-cost path to market returns – without guesswork. While developed countries like the USA have already embraced index investing, India still has vast room for growth in this space. As active funds struggle to keep pace and awareness spreading, the message is clear: smart money isn’t waiting. It’s already flowing into index funds. Time to follow the trend – or risk being left behind.
Disclaimer: The data in this presentation is meant for general reading purposes only and are not meant to serve as a professional guide/investment advice for the readers. This presentation has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been suggested or offered based upon the information provided herein, due care has been taken to ensure that the facts are accurate and reasonable as of date. The information placed on the presentation is for informational purposes only and does not constitute an offer to sell or buy a security. The Company reserves the right to make modifications and alterations to the content available on the presentation. Readers are advised to seek independent professional advice and arrive at an informed investment decision before making any investment. The EduFund platform & the website is owned, operated, and maintained by Helena Edtech Private Limited, a company incorporated under the laws of India. An affiliate of the Company, i.e. Edubillions Tech Private Limited, is registered with AMFI as mutual fund distributor bearing the registration number ARN258733. Investment in the securities market is subject to market risks, read all the related documents carefully before investing. The valuation of securities may increase or decrease depending on the factors affecting the securities market.
