The AUM of passive funds will grow over eight times from the current levels of Rs 3 lakh crore to Rs 25 lakh crore by 2025, according to a report by Finity.
The report also sees the share of passive funds in total industry assets rising from 11% at present to 37% by 2025.
The 'Passive Investing 2021' report arrived at the Rs 25-trillion figure by assuming an annual growth rate of 69.15%, which has been the growth rate in the last five years.
Passive funds, which are a popular investment option in developed markets, started gaining traction in India in the last few years. The passive assets under management have grown from Rs 22,409 crore in March 2016 to Rs 3.10 lakh crore in March 2021. The share of passive funds in industry AUM has almost doubled in the last two and a half years. The share rose from 6% in March 2019 to 11% in September 2021.
According to the report, three factors that are contributing to the rising interest in passive investing are - underperformance of active funds, especially in the large cap category; lower costs; and regulatory and government policies that encourage investment in passive investing products.
Apart from these, the report sees five other factors driving growth of passive funds including goal-based investment products like retirement and child care ETF funds, introduction of direct indexing and smart beta products among others.
