Passive Flows - Does the Recent Spike Signal the Start of a New Trend?

When the mutual fund flow data for September 2025 was released, one number stood out - passive fund inflows came in strong at ₹19,056 crore. It’s been a while since we saw such enthusiasm for passive funds. But does this really signal a structural comeback for passive investing in India, or is it just another short-term momentum play?

Passive Flows Shine in September 2025

At ₹19,056 crore, the net passive flows were among the best in recent months. In fact, for September 2025, passive funds came in second only to active equity flows, which crossed ₹30,000 crore. Meanwhile, hybrid fund flows were rather subdued.

This renewed traction towards passives does raise a big question - are Indian investors shifting back toward the passive story again?

After 2020, passive funds in India saw strong growth, driven by the popularity of index funds and ETFs. But in the last two years, this enthusiasm tapered off as active fund performance improved and investors chased higher alpha. The September data hints at a possible reversal - though the reasons may not be as straightforward as they appear.

Not So Passive After All!

A closer look at the numbers tells an interesting story. Out of the ₹19,056 crore of total passive inflows in September, nearly ₹14,000 crore went into gold ETFs and silver ETFs. That’s almost three-fourths of the total!

This isn’t about passive investing in the traditional sense - it’s momentum chasing. Most Indian investors view gold and silver ETFs not as low-cost long-term allocations but as short-term bets on price movements.

With gold hitting $4,000 per ounce and silver touching $50, these flows look more like tactical trades than strategic investments. It reflects the Indian investor’s behavior - emotionally driven by recent performance rather than disciplined asset allocation.

Passive Supply Is Still Scarce

For passive investing to take off meaningfully, two ingredients are essential - a strong narrative and adequate supply. India is still building both.

The entry of Jio BlackRock has brought renewed attention and potential supply depth to passive products, but the ecosystem remains shallow. In the U.S., the rise of Vanguard, BlackRock, and other global giants built an entire industry around low-cost passive investing. India has yet to reach that maturity.

Warren Buffett famously said in his 2016 shareholder letter that John Bogle, the founder of Vanguard, saved American investors trillions of dollars through index funds. India needs its own “Bogle moment” - a strong institutional push and investor education campaign that emphasizes the benefits of cost efficiency and long-term compounding through passive investing.

Is There Adequate Demand?

Demand remains the bigger challenge. Passive fund participation in India continues to be dominated by corporates, insurance companies, and institutional investors. High Net Worth Individuals (HNIs) are gradually warming up, but retail investors are still missing in action.

The typical Indian retail investor associates mutual funds with the hope of beating the market. As long as that expectation persists, passive investing - which by design mirrors the market - will struggle to capture imagination.

To change this, India needs a cultural shift in how financial advisors, distributors, and platforms position passives - not as substitutes for active funds, but as foundational, low-cost building blocks for long-term portfolios.

The rise of financial planning as a concept may eventually change this. As investors start planning goals rather than chasing returns, passive products could become a core part of disciplined portfolios. Until then, the growth will remain episodic - flaring up during gold rallies or new ETF launches and cooling off just as quickly.

The Bottom Line

The September surge in passive flows may be exciting, but it’s not yet the start of a new long-term trend. For now, most of these inflows are being driven by gold and silver ETFs - tactical, not structural.

India still needs a more robust passive product pipeline, better investor awareness, and stronger retail participation to truly make this a sustained shift. Until then, the passive story in India will continue to hover between promise and potential - like waiting for Godot.

Disclaimer: This article is for informational purposes only and should not be considered investment advice. Investors are advised to consult with a financial advisor before making investment decisions.