High-net-worth individuals have rapidly increased their passive mutual fund holdings, tripling their share to 19.9% by March 2026. With the industry’s total assets reaching ₹15.15 lakh crore by July 2026, investors are increasingly shifting toward index funds for cost efficiency and transparency. Regulators are now reviewing potential limits on fund launches as this segment grows.
High-net-worth individuals (HNIs) are significantly increasing their participation in passive investment vehicles. Their stake in the total assets under management (AUM) of passive mutual funds tripled to 19.9% by March 2026, a sharp rise from 6.6% five years earlier. This trend reflects a broader move away from traditional active management as investors seek transparency and lower costs, according to data from the AMFI-Crisil Intelligence Factbook 2026.
The entire passive fund industry, which includes exchange-traded funds (ETFs) and index funds, has seen a period of rapid expansion. By July 2026, the industry's total AUM climbed to ₹15.15 lakh crore, representing about 18% of the total mutual fund industry. This marks a 324% increase in AUM since July 2021, driven by both market performance and consistent inflows from diverse investor classes.
While corporate investors have historically dominated this space, their share of total passive AUM has moderated, falling to 69.6% in March 2026 from 78.4% five years prior. As corporates hold a smaller relative slice, the growth in HNI and retail participation has become the new engine for the industry. Retail investors, in particular, have pivoted heavily toward index funds, which now account for 55% of their total passive fund allocation, compared to just 11.5% in the 2021 financial year. Interest in gold ETFs has also grown among retail participants, reaching 14.9% of their passive portfolio as a hedge against economic uncertainty.
Despite this growth, the surge in passive funds brings specific risks that investors should recognize. Because passive funds track underlying indices, they offer no downside protection during market corrections, exposing portfolios to full market volatility. Furthermore, the rapid rise of thematic and sectoral passive funds poses a risk of portfolio concentration. If investors rely too heavily on these niche offerings without proper diversification, their returns could suffer during sector-specific downturns. There is also the potential for tracking error and liquidity issues in ETFs, particularly during periods of intense market stress.
Regulatory attention is also increasing as the number of passive fund offerings multiplies. SEBI is currently exploring the implementation of potential limits on the number of passive funds permitted per category. The goal of this regulatory review is to streamline the marketplace and reduce investor confusion caused by the abundance of similar products. As of 2026, the industry has seen passive fund folios grow to over 5 crore, confirming the massive retail adoption. Investors should track future regulatory announcements regarding product limits, as these rules could reshape the competitive landscape for asset management companies.