Passive fund boom gets niche facelift

Investors hunting low-cost but innovative market bets are fuelling a boom in niche passive funds targeting better returns than plain-vanilla alternatives, often alongside indices designed to track them.

- Srushti Vaidya

Sometimes, it's the other way around.

Passive funds, as the name suggests, are passively managed and mirror the performance of indices such as Nifty 50 or S&P BSE 500, allowing investors a low-cost and less risky exposure to the market.

But as family offices and individual or retail investors also seek higher returns from passive funds, India's mutual fund industry is getting bolder with niche thematic products. The growing interest in passive funds coincides with the underperformance of several active funds relative to their benchmark index.

So far in 2025, mutual funds have added 225 thematic and factor-based passive funds, up from 183 in all of 2024, per Value Research data.

As of July, assets managed by thematic and factor-based passive funds had grown 16% year-on-year to 1.4 trillion, as per a report by DSP Mutual Fund on passive funds.