If 2025 has a significant trend to throw up from the mutual fund industry, it is this: Investors are increasingly looking at exchange traded funds (ETFs – metals and equity) and index funds as a core allocation tool while adopting a holistic approach to portfolio construction. “They are not just a tactical product,” says Bhalachandra Shinde, Associate Fund Manager, Motilal Oswal Asset Management Company, adding that costs, transparency, and the ease of building diversified exposure support continued adoption.
Perhaps, this explains why trading volumes for ETFs in India have surged from ₹51,000 crore in FY20 to ₹3.83 lakh crore in FY25, an increase of over seven times, per data available from market analysts. As of October, the Indian ETF landscape crossed the ₹10-lakh crore AUM milestone.
Assets under management (AUM) of index funds, too, jumped 16.4 per cent to ₹3.2 lakh crore in 2025, outpacing the return of Sensex and Nifty that returned about 8.8 per cent each YTD.
Equity ETFs sizzle
A note from Zerodha Fund House says that equity ETFs continue to dominate the market, accounting for 25 lakh new folios in the last 12 months. “This shift is characterised by a surge in gold and silver ETFs, which have grown to represent nearly 15 per cent of the total ETF AUM as of November 2025.”
According to Prashant Thakkar, President – Retail Strategy, Operations & Technology at LIC Mutual Fund AMC, Gold ETFs saw a staggering 56 per cent year-on-year folio growth by November, driven by global uncertainty. This transition may underscore a maturing market where investors are actively balancing equities with the diversification of precious metals, says Vishal Jain, CEO, Zerodha Fund House, in the note. “As the market matures, institutional investors and cost-conscious retail investors are moving toward Index ETFs for large-cap exposure,” says Thakkar.
A key driver for this shift is the unprecedented rise in retail engagement, thanks to the increase in education and awareness about ETFs and easier access to digital platforms.
As the year winds up, industry participants are hopeful that this trend would continue in 2026 too. “ETFs have structural tailwinds because of low cost, transparency, and convenience of broad market exposure. As awareness and liquidity improve, ETF adoption should continue in 2026 and beyond, especially in index linked categories,” says Chintan Haria, Principal – Investment Strategy, ICICI Prudential AMC.
Passives to rule 2026
While the demand for ETFs is expected to remain robust, in 2026 passive funds are likely to be to be a significant portion of core portfolio allocation, says Thakkar.
“Looking ahead to 2026, passive investing is no longer a side bet, it is fast becoming the backbone of long-term portfolios. AUM has climbed from ₹1.9 lakh crore in 2019 to ₹13.7 lakh crore in 2025, marking a sevenfold rise, while folios have expanded nearly 20-fold to 4.7 crore. This sharp acceleration reflects how investors across geographies and profiles are embracing low-cost, transparent and rules-based strategies as default choices. The momentum is expected to sustain in 2026, supported by deeper retail participation and growing institutional interest,” says Hemen Bhatia, ED and CEO, Angel One AMC.
Radhika Gupta, MD & CEO, Edelweiss MF, says, “We expect gradual but steady traction for factor-based strategies in 2026. As investor understanding improves, factors such as quality, momentum and low volatility are increasingly seen as structured, rule-based alternatives to traditional active and plain-vanilla passive funds. While adoption will be measured rather than aggressive, these strategies are likely to gain acceptance as satellite allocations, especially among informed and long-term investors seeking transparency and disciplined exposure.”
According to Haria, factor adoption will depend on investor education and suitability. While rule-based factor strategies can gain traction as investors seek transparent frameworks like value, quality, low volatility or momentum, “we expect informed investors to start using factors as a satellite allocation,” he says.
Shinde is betting big on steady core passive growth, while pointing out, “We also see thematic/event-driven spikes (like precious metals at times).”
Global trends, too, seem to underscore this shift towards passives. In the US, passive funds now account for more than half of mutual fund assets, with AUM rising from $13 trillion in 2019 to over $20 trillion by 2025, according to ICI (including ETFs and index funds). “With India’s passive share around 17%, the journey into 2026 and beyond suggests a long and compelling growth runway ahead,” says Bhatia.