Passive Funds Grow Folios 33%, AUM 25% in May 2026. But Net Flows Have Nearly Dried Up.

Passive funds in India closed May 2026 with a paradox. Folios grew 33.3% year-on-year. AUM grew 24.7%. Yet net inflows for the entire month came to just ₹362 crore, the thinnest reading in recent memory. Six of the twelve passive fund categories saw net outflows. The headline growth numbers are real, but the flow story tells a different tale.

The divergence is explained by three forces pulling simultaneously: precious metals profit-booking after a strong 2025 rally, rising bond yield anxiety driving debt ETF exits, and base-effect fatigue moderating equity index ETF momentum. At the same time, a quieter but significant shift is underway: overseas fund-of-funds (FoFs) are attracting growing interest as a diversification tool.

This article breaks down the May 2026 passive fund data by category, examines the folio and AUM growth story in detail, and identifies the three structural trends reshaping the passive investing landscape in India.

May 2026 Passive Fund Snapshot: Folios, AUM, and Net Flows by Category

Total passive fund AUM stood at ₹15,26,511 crore as of May 31, 2026, a 24.7% increase year-on-year. Total folios reached 5.66 crore, up 33.3% from the same period last year. Net inflows for the month, however, were just ₹362 crore, with equity index ETF gains almost entirely offset by outflows from debt ETFs, gold ETFs, and silver ETFs.

Passive Fund Flows in May 2026 Fell to Near Zero: Here Is Why

Total net inflows into passive funds in May 2026 were just ₹362 crore: the result of ₹6,692 crore in equity index ETF inflows being nearly wiped out by ₹5,179 crore in debt-oriented ETF outflows, ₹2,133 crore in silver ETF outflows, and ₹725 crore in gold ETF outflows. The three outflow categories together absorbed almost all of the equity category's gains.

Why did debt-oriented ETFs see ₹5,179 crore in outflows?

Debt-oriented ETF outflows were the single largest drag on passive flows in May. India's 10-year G-sec yield climbed approximately 34 basis points to around 7% in the months preceding May 2026, driven by inflation concerns following the Iran conflict and market pricing of a potential RBI rate hike. ICRA noted that G-sec yields moved up 28 basis points during May 2026 alone, the effective equivalent of a rate hike, even though the RBI held its repo rate at 5.25%. When yields rise, existing bond prices fall, and longer-duration debt ETFs lose value. Institutional and long-duration investors responded by exiting. Over the year to May, debt-oriented ETF folios contracted 32.4% and AUM fell 5.4%.

Why did gold ETFs record outflows after 13 consecutive months of inflows?

Gold ETFs recorded net outflows of ₹725 crore in May 2026, ending a 13-month inflow streak. The reversal reflects profit-booking after gold's sharp rally in 2025, a global moderation in precious metals ETF demand. The World Gold Council noted that only Europe recorded gold ETF inflows in May 2026. New investment restrictions placed by major fund houses including HDFC Mutual Fund, Nippon India Mutual Fund, and Tata Mutual Fund on large gold ETF subscriptions. Despite the monthly outflow, gold ETFs have attracted substantial inflows over the year, and their AUM still grew 195.5% YoY to ₹1,84,571 crore.

Why did silver ETFs see outflows despite exceptional folio growth?

Silver ETFs saw net outflows of ₹2,133 crore in May even as their YoY folio count grew 515% and AUM expanded 411%. This apparent contradiction reflects timing: the folio surge happened during 2025's strong silver price performance, and May 2026 outflows represent profit-booking by investors who entered at lower levels. The combined AUM of gold and silver ETFs now stands at over ₹2.71 lakh crore, approximately 3.5 times where it was a year ago, reflecting the lasting structural shift in precious metals participation even as short-term flows cool.

What the Folio and AUM Growth Numbers Actually Show

The 33.3% folio growth and 24.7% AUM growth for passive funds YoY are still meaningful, but the rate of expansion is decelerating. The exceptional base built during 2025's precious metals-driven inflow surge is now making year-on-year comparisons progressively harder, and broader market uncertainties have dampened incremental flows across categories.

Which categories drove folio growth?

Three categories dominated folio expansion over the year to May 2026. Silver ETFs led at 515% folio growth, driven by the strong price performance of silver in 2025 and favourable tax changes that reduced the LTCG holding period to one year with a 12.5% cap. Debt Index Funds (Ex-TMIF) grew folios 271%, though from a small base. Gold ETFs grew folios 67.5%, reflecting the sustained investor interest built during the 2025 bullion rally.

Two categories saw folio contraction. Debt-oriented ETFs lost 32.4% of their folio base YoY. FOFs on overseas passive funds contracted 12.4%. Both declines reflect investors reassessing risk-return in a rising yield environment and the differential performance across overseas fund types. For more on how taxation affects these choices, see Finnovate's explainer on mutual fund taxation for FY 2025-26.

What does the AUM growth story say?

AUM growth mirrors folio trends but with amplification from price movements. The table below shows the spread across categories:

Three Structural Shifts Emerging in Passive Investing

Three distinct structural patterns have emerged from May 2026 passive data, each pointing in a different direction for the category over the next 12 to 18 months.

Shift 1: Debt index ETFs are under sustained, structural pressure

The contraction in debt-oriented ETFs is not a single-month event. It reflects a sustained rotation away from long-duration passive debt instruments as bond yields have risen sharply over the past year.

• Folio contraction: Debt-oriented ETF folios fell 32.4% YoY, the steepest folio decline of any passive category.
• AUM contraction: AUM fell 5.4% YoY, even as the broader passive fund AUM grew 24.7%.
• Bond yield context: India's 10-year G-sec yield moved from approximately 6.27% a year earlier to around 7% by May 2026. When yields rise, older bond prices fall, reducing the value of debt ETF portfolios.
• Downstream impact: Gilt fund assets fell approximately 20% and long-duration fund assets approximately 34% over the year, based on AMFI category-level AUM data for May 2025 versus May 2026.

Investors who held these instruments for stability are reassessing their allocation to passive debt, particularly in the index ETF format.

Shift 2: Precious metals enthusiasm is moderating after the 2025 surge

Both gold and silver ETFs saw net outflows in May despite their extraordinary long-run folio and AUM numbers. Four factors explain the moderation:

• Profit-booking: Investors who entered silver and gold ETFs during the 2025 rally at lower levels are now booking gains.
• Fund house restrictions: Several fund houses, including HDFC Mutual Fund, Nippon India Mutual Fund, and Tata Mutual Fund, have imposed restrictions on large gold ETF subscriptions.
• Global context: The World Gold Council noted that globally, precious metals ETF flows weakened in May, with only Europe recording gold ETF inflows.
• Not a structural reversal: Gold ETFs have attracted net inflows over the full 2026 year to date. The momentum-driven phase appears to be pausing, not ending.

For a full breakdown on how gold is taxed in India, see Finnovate's guide on taxation of gold in India.

Shift 3: Overseas FoF investing is quietly gaining traction

FOFs on overseas active funds recorded ₹816 crore in net inflows in May 2026, 75.9% folio growth YoY, and AUM that more than doubled to ₹38,630 crore. Three factors are driving this shift:

• Diversification demand: Indian investors are increasingly recognising the value of geographic diversification as a hedge against domestic equity and currency volatility.
• Differentiated returns: Overseas equity markets have delivered returns that diverged meaningfully from domestic benchmarks during portions of the past year.
• Supply gap: With global equity ETF subscriptions restricted by several fund houses, overseas active FoFs have partially filled the demand for international exposure.

Investors considering the broader active-versus-passive question may find Finnovate's analysis on active vs passive portfolio management a useful reference.

Key Takeaways

1. Total passive fund net inflows collapsed to ₹362 crore in May 2026, the lowest in recent memory. Precious metals and debt ETF outflows nearly wiped out equity index ETF gains of ₹6,692 crore.
2. Debt-oriented ETF outflows of ₹5,179 crore were the single largest drag, driven by rising bond yields and rate hike fears even as the RBI held its repo rate steady at 5.25%.
3. Gold ETFs recorded their first outflow in 13 months at ₹725 crore; silver ETFs saw ₹2,133 crore exit as precious metals profit-booking gathered pace after the 2025 rally.
4. Equity index ETFs (domestic) held firm with ₹6,692 crore in inflows, and folio and AUM growth remained positive, suggesting systematic index investing continues even as momentum flows retreat.
5. Silver ETF folio growth of 515% and gold ETF folio growth of 67.5% YoY reflect the lasting structural change in precious metals participation, even as short-term flows have turned negative.
6. Overseas FoF inflows of ₹816 crore in May and 104% YoY AUM growth signal an emerging shift toward global diversification among passive fund investors in India.

FAQs

1. Why did passive fund inflows fall sharply in May 2026?

Passive fund net inflows fell to just ₹362 crore in May 2026 because outflows from debt-oriented ETFs (₹5,179 crore), silver ETFs (₹2,133 crore), and gold ETFs (₹725 crore) nearly offset the ₹6,692 crore in equity index ETF inflows. Rising bond yields drove debt ETF exits, while precious metals profit-booking reduced gold and silver ETF inflows.

2. What caused gold ETF outflows in May 2026?

Gold ETFs ended a 13-month streak of consecutive inflows in May 2026, recording ₹725 crore in net outflows. The outflow reflects investor profit-booking after the strong bullion rally in 2025, new investment restrictions placed by several fund houses on large gold ETF subscriptions, and a broader global moderation in precious metals ETF flows during the month.

3. Which passive funds saw outflows in May 2026?

Six categories recorded net outflows in May 2026: debt-oriented ETFs (₹5,179 crore), silver ETFs (₹2,133 crore), gold ETFs (₹725 crore), debt index funds, TMIF category (₹994 crore), debt index funds ex-TMIF (₹865 crore), and FOFs on overseas passive funds (₹52 crore). Data Source: AMFI.

4. Why are debt-oriented ETFs facing outflows in 2026?

Debt-oriented ETFs are facing outflows because India's bond yields have risen sharply. The 10-year G-sec yield moved from approximately 6.27% a year ago to around 7% by May 2026. Rising yields cause existing bond prices to fall, reducing the value of debt ETF portfolios and prompting investors to exit long-duration instruments. ICRA noted that G-sec yields moved up 28 basis points in May 2026 alone, the effective equivalent of a rate hike. Please consult a SEBI-registered investment adviser before making any changes to your debt fund allocation.

5. How much is the total AUM of passive funds in India as of May 2026?

Total passive fund AUM in India stood at ₹15,26,511 crore (approximately ₹15.27 lakh crore) as of May 31, 2026, a 24.7% increase year-on-year. Equity-oriented ETFs (domestic) were the largest category at ₹7,59,938 crore, followed by debt-oriented ETFs at ₹92,748 crore and gold ETFs at ₹1,84,571 crore. Data Source: AMFI.

6. Are silver ETF outflows in May 2026 a sign of a trend reversal?

Silver ETF outflows of ₹2,133 crore in May 2026 reflect profit-booking after the strong 2025 rally rather than a confirmed trend reversal. Silver ETF folios still grew 515% YoY and AUM expanded 411% YoY, indicating that the investor base built over the past year remains largely intact. Whether outflows continue will depend on silver prices, global commodity sentiment, and investor behaviour in subsequent months.

Disclaimer: This article is for general information and educational purposes only. It does not constitute investment advice, a recommendation, or an offer to buy or sell any securities or financial instruments. Passive fund flow data, folio counts, and AUM figures are sourced from AMFI and are subject to revision. Past performance and historical flow patterns in passive funds, ETFs, gold, silver, and debt instruments are not indicative of future outcomes. Investors should not make any investment decision based solely on this article. Please consult a SEBI-registered investment adviser or qualified financial professional before making any investment decision. Mutual fund investments are subject to market risks. Please read all scheme-related documents carefully before investing.