Copyright © HT Digital Streams Limit all rights reserved. Passive funds reflect the performance of indices such as Nifty 50 or S&P BSE 500, which allows investors to have low cost and less risk exposure to the market. (Pixabay) Summary passive funds shed their ordinary Vangilla label as investors chase niche strategies. Thematic and smart-beta products get traction, backed by a wave of new indices of NSE and BSE. Investors who hunt a low cost, but innovative market bets, promote a boom in niche-passive funds that are better returns than alternatives to vanilla, often along with indices designed to detect them. Sometimes it’s the other way around. Passive funds, as the name suggests, are passively managed and reflect the performance of indices such as Nifty 50 or S&P BSE 500, which allows investors to have low cost and less risk exposure to the market. But since family offices and individual or retail investors also seek higher yields from passive funds, India’s mutual fund industry becomes brave with niche -thematic products. The growing interest in passive funds coincides with the underperformance of various active funds relative to their benchmark index. So far in 2025, mutual funds have added 225 thematic and factor-based passive funds, from 183 in the entire 2024, according to research data. From July, assets managed by thematic and factor-based passive funds grew a year-on-year to £ 1.4 trillion, according to a report by the DSP Mutual Fund on passive funds. Factor-based passive funds, also known as smart beta funds, keep indexes based on factors such as value, momentum and volatility. Thematic funds focus on trends such as clean energy and digital transformation. Currently, about 40% of India’s 620 passive funds are sectoral, thematic or smart-beta products per national stock exchange data. Niche passive funds account for about 11% of assets managed by all passive funds. The number of niche indexes has also increased -with the BSE Index Services Ltd launching BSE 500 Momentum Index and BSE India Sector Leaders Index this year, and NSE Indices Ltd Rolling from Nifty India New Age consumption index and Nifty 500 Multicap Momentum Quality 50 Index. Important takeaways are increasingly turning to thematic and smart-beta products for higher returns, moving beyond traditional broad market index funds. NSE and BSE start new indices, which enable mutual funds to offer different, differentiated passive products. Persistent underperformance of largecap and midcap active funds drives investors to low cost, innovative passive alternatives. When stock exchanges introduce such indices, it paves the way for a mutual fund to start a passive fund that repeats these indices. Sometimes mutual funds want to start a niche providers of passive fund approach index. Ashutosh Singh, managing director and CEO of BSE Index Services, said increasing interest in passive products linked to themes and factors are reflected in the growing number of product launches in such strategies. “As the ecosystem develops, we believe there is room for more innovative indices outside the dominant traditional broad market indices of today,” Singh said. “The innovation on sectoral, thematic and smart beta index strategies has contributed to passive fund managers diversifying and offering differentiated offers,” added Aniruddha Chatterjee, managing director and CEO of NSE Indices. “We are working on asset managers and product streets to constantly judge and create investment strategies in the form of a new index to meet the demand and preferences of investors.” The rapid growth of the passive fund industry in 2024-25, there were 169 new fund offerings within passive funds, which took the total number to 620 per NSE. Passive funds were also 17.4% of the total assets of the mutual fund industry under management (AUM) in FY25, higher than about 17% in FY24 and 7.3% in FY20, according to the Association of Mutual Funds in India. The total AUM of passive funds has increased almost 8 times over the past five years to £ 12.91 trillion. // Any data on returns of passive funds and niche passive funds? “The interest in passive is not just about low cost and underperformance of active funds, but we see Uptick in innovative product categories such as Smart Beta, Thematics and Others,” says Siddharth Srivastava, Mirae Asset (India) chief and fund manager. “People are now looking at passive funds for differential solutions, except to simply consider it a substitute for active funds.” In the decade to 2024, 74% of the Largecap Active Mutual Fund schemes in India underperformed their benchmark, just like 88% of the active Midcap and smallcap schemes, according to the S&P Dow Jones Indices’ latest report. “Many things come together for passive investment in India – investors exposed to broad market passive portfolios, low to solid risks; developed investors who get deeper access to certain bags of market video thematic and sector passive; EPFO (employees’ provident fund organization) Kerd -effect that can be more investors; diverse offer over buckets; [and] New regulations that support operational efficiency, “says Shaily Gang, head of products at Tata Asset Management. New roads for more indexes The National Stock Exchange and BSE are both looking for more niche ways to launch more indices. Index providers also see interest in passive fund products under insurance companies and pension funds. Get in the performance of these funds, he added.
India’s passive fund boom gets a niche
