India Now Has 721 Passive Mutual Fund Schemes. Why AMCs Keep Launching More

India had only 104 passive mutual fund schemes in April 2019. By July 2026, that number had jumped to 721.

Index funds, ETFs and Gold ETFs now account for 37.7% of all open ended mutual fund schemes in India. More importantly, 617 of the 1,012 net new open ended schemes added since April 2019 came from passive products. That means around 61% of the expansion in the open ended mutual fund shelf came from passive funds.

At first, this may look like a simple story of Indian investors rapidly shifting from active funds to passive investing. But the data tells a more interesting story. Passive funds now make up 37.7% of the open ended scheme shelf, but they hold only 17.7% of open ended mutual fund AUM. So AMCs have built passive products much faster than investors have moved money into them.

To understand why this is happening, we first need to understand how SEBI rules shape what mutual fund houses can launch.

Why Are AMCs Launching So Many Passive Mutual Funds

Mutual fund houses do not have unlimited freedom to launch similar active schemes under different names. SEBI categorisation rules generally restrict an AMC to 1 scheme in each traditional active category. This was designed to reduce unnecessary duplication and make mutual fund categories easier for investors to compare.

If an AMC already has a large cap fund, for example, it cannot simply launch another conventional large cap fund whenever it wants. The situation is different for passive products.

Index funds and ETFs tracking different indices can coexist. Fund of Funds with different underlying schemes can coexist. Sectoral and thematic funds focused on different sectors or themes can also coexist. This gives AMCs far more room to create products outside traditional active categories.

An AMC may have only 1 large cap fund, but it can potentially offer products tracking the Nifty 50, Sensex, Nifty Next 50, Nifty 100, Nifty 200, mid cap indices, factor indices and several sector indices.

That difference helps explain why passive scheme counts have expanded so rapidly.

The numbers make the contrast clear.

Large cap funds added just 2 schemes in 5 years. Index funds added 325. Other ETFs added another 220. This is not just a difference in investor preference. It reflects how the product architecture of the mutual fund industry has changed.

Traditional active categories have become relatively mature. Passive products still offer AMCs far more possibilities for differentiation. That explains why the supply of passive products has exploded. The next question is whether investor demand has grown at the same speed.

How India Went From 104 To 721 Passive Schemes

The scale of the transformation becomes clearer when passive funds are measured against the entire open ended mutual fund industry.

Passive here includes index funds, other ETFs and Gold ETFs. In April 2019, only around 1 in every 9 open ended mutual fund schemes was passive. By July 2026, nearly 4 out of every 10 schemes were passive. This is one of the biggest structural changes in the Indian mutual fund industry over the last several years. But scheme count tells us what AMCs have created.

It does not tell us how much investor money those schemes have attracted. That requires looking at AUM.

Passive Funds Are 37.7% Of Schemes But Only 17.7% Of AUM

Passive fund assets have grown enormously.

In April 2019, passive funds managed around ₹1.41 lakh crore. By July 2026, passive AUM had reached approximately ₹15.15 lakh crore. That is more than a 10 times increase in absolute assets. So passive investing has clearly become much more important. But its share of overall mutual fund AUM has not increased nearly as quickly as its share of products.

The key divergence starts becoming visible after March 2023. Passive scheme share increased from 27.3% in March 2023 to 37.7% by July 2026. Passive AUM share, however, moved from 17.3% to 17.7%. In simple terms, AMCs kept launching passive products, but those products did not capture industry assets at the same pace.

This does not mean passive investing has failed. Passive AUM has increased sharply and investor participation has expanded significantly. The better interpretation is that product supply has run ahead of investor demand. The shelf has grown faster than the money invested in it.

Folio Growth Shows Passive Investing Is Still Becoming Mainstream

AUM is not the only way to measure adoption. Folio data shows that many more investors are now using passive funds. A folio is essentially an investor account within a mutual fund scheme. It is not the same as the number of unique investors because 1 person can have several folios. Even with that limitation, the change is meaningful.

Passive products accounted for only 1.9% of open ended mutual fund folios in April 2019.

• By March 2022, their share had reached 13.4%.
• By March 2025, it stood at 17.1%.
• In March 2026, passive products crossed 20% of open ended folios.
• By July 2026, their share stood at around 19.8%.

So passive investing is clearly no longer a niche. More investors are using index funds and ETFs. But participation and AUM are not the same thing. A relatively new ETF can have many small investor accounts while an established active fund may hold decades of accumulated investor wealth. This helps explain why passive folio share can rise sharply while passive AUM share remains much lower than passive scheme share.

NFO data gives us another way to see the same gap.

NFO Data Shows AMCs Are Launching Faster Than Investors Are Funding

A New Fund Offer, or NFO, is the initial period when a newly launched mutual fund opens for investment.

NFO data helps answer a different question.

When AMCs launch all these new schemes, how much money are investors actually putting into them at launch.

The available FY25 data shows a striking difference.

Passive funds dominated the number of launches. But active funds dominated the money raised. The average active NFO raised almost 20 times as much as the average passive NFO.

The NFO figures should be treated as directional because the AMFI New Schemes Report changed format during the period and the available FY25 dataset excludes December 2025.

Even with that caveat, the difference is large enough to reveal the broader trend. AMCs are launching passive products much faster than investors are funding them at the starting line. The category level numbers make the contrast even sharper.

47 ETF Launches Raised Around ₹427 Crore

The available FY25 data shows how different investor interest can be across fund categories.

The 47 Other ETF launches together raised around ₹427 crore. That works out to roughly ₹9 crore per launch. Meanwhile, 23 sectoral and thematic launches collected around ₹16,656 crore. Fewer thematic launches attracted vastly more money. This tells us something important about investor behaviour. Investors do not choose funds based only on whether they are active or passive. Market narratives matter. Recent returns matter.

AMC reputation matters. Distribution matters. And themes can attract attention because they are easy to understand as stories. A defence fund can be linked to rising defence spending. A manufacturing fund can be linked to industrial expansion. A technology fund can be linked to digital and AI growth. A broad index fund usually offers a less dramatic story. Its appeal is often diversification, simplicity and lower cost. This also explains why thematic funds have become another major area of product expansion.

Why Thematic Funds Are Growing Too

Passive products are not the only funds multiplying rapidly. Sectoral and thematic schemes increased from 110 in July 2021 to 251 by July 2026. That is an addition of 141 schemes in 5 years. The reason is partly structural.

While an AMC generally cannot keep launching multiple funds within the same conventional active category, it can have different sectoral and thematic funds if they pursue different eligible themes.

So fund houses have more room to create differentiated products in thematic categories too. This strengthens the broader conclusion. The mutual fund shelf is increasingly expanding in areas where regulation and product design allow more differentiation.

Passive funds can differentiate through indices. Thematic funds can differentiate through sectors and themes. Traditional categories such as large cap have much less room for repeated launches. For investors, however, more choice creates another problem. More products do not automatically mean better products.

Passive Does Not Automatically Mean Low Risk

One of the most common misunderstandings around passive investing is that passive automatically means safe. It does not. A passive fund simply follows an index according to predetermined rules, while the fund manager is not making the same discretionary stock selection decisions that an active fund manager makes. But the underlying index can still be risky.

Consider 2 passive funds. One tracks a broad market index containing large companies across several industries, while another tracks a narrow sector index concentrated in just 1 part of the economy. Both are passive, but their risk can be completely different. If the sector goes through a downturn, the second fund can fall sharply even though the fund is following its index perfectly.

So passive tells you how the portfolio is constructed. It does not tell you whether the portfolio is diversified, conservative or suitable for your financial goal. This becomes especially important as AMCs launch more specialised index products.

The Fund May Be Passive But The Investor Is Still Making An Active Choice

Passive investing creates an interesting paradox. The fund follows an index automatically, but the investor still has to decide which index to own. Choosing a Nifty 50 index is different from choosing a mid cap index, just as choosing a momentum index is different from choosing a value index.

Similarly, choosing a banking ETF is very different from choosing a diversified equity index. Those decisions can have a major impact on risk and returns. So passive investing does not eliminate the need for research. It changes the research question.

Instead of asking which fund manager will select better stocks, investors increasingly need to ask which index provides the exposure they actually need. That makes understanding the index itself the first step in evaluating a passive fund.

What Investors Should Check Before Choosing A Passive Fund

The rapid expansion of index funds and ETFs makes fund selection more important. Investors should therefore focus on a few basic factors before choosing a passive fund.

Underlying Index

Understand what the fund actually tracks. Check which companies the index contains, how those companies are selected and what part of the market the index represents. A broad index and a narrow sector index can behave very differently.

Portfolio Concentration

Do not assume that a fund is diversified simply because the index contains many stocks. Check how much weight sits in the largest companies and sectors. An index with 50 stocks can still be heavily influenced by a small number of holdings.

Expense Ratio

One attraction of passive investing is lower cost. Lower expenses help because fees directly reduce investor returns. But the lowest expense ratio should not be the only reason to choose a fund.

Tracking Difference

Passive funds are designed to follow an index, but they rarely deliver exactly the same return. Expenses, transaction costs, cash holdings and implementation can create a gap between the fund return and the benchmark return. Tracking difference helps investors understand how closely the fund actually followed the index.

ETF Liquidity

ETFs trade on stock exchanges, which means investors also need to consider trading activity and bid ask spreads. A thinly traded ETF can sometimes be harder or more expensive to buy and sell efficiently than a highly liquid ETF.

Portfolio Overlap

Before adding another passive fund, check whether your existing funds already own many of the same securities. Another fund name does not automatically mean another source of diversification.

More Funds Can Actually Make A Portfolio Less Clear

The explosion in mutual fund choice creates a strange possibility. An investor can own more funds and still not be meaningfully more diversified. Suppose an investor owns a Nifty 50 index fund, then adds a Nifty 100 fund and later adds a flexi cap fund. All 3 products may hold several of the same large companies.

The portfolio now has more schemes, but much of the underlying exposure may still overlap. This is why investors should count exposures, not fund names. Every additional fund should have a clear job.

It could provide exposure to a different market segment, reduce concentration or serve a different financial goal. If another fund does none of these things, adding it may only increase complexity.

Why AMCs May Still Launch Small Passive Funds

If some passive NFOs raise relatively little money, why would AMCs keep launching them? Because an AMC is not building its product shelf only for the NFO period. A passive product can remain available for years, and assets can accumulate gradually as investor awareness grows.

Fund houses may also want to establish products before a particular index or investment strategy becomes popular. Today, broad market indices may dominate investor interest. Tomorrow, demand could increase for mid cap indices, factor strategies, debt indices, international exposures or other passive strategies.

An AMC that already has these products available is better positioned when demand arrives. So a small NFO does not necessarily mean the product has failed. It may be part of a longer term product strategy.

That strategy may make sense for an AMC, but investors should not confuse the AMCs need to build a product shelf with their own need to build a portfolio. Those are 2 very different objectives.

What The Multi Cap And Flexi Cap Shift Teaches Us

Scheme counts always need regulatory context. Multi cap funds are a good example. There were 34 multi cap schemes in April 2019, but by July 2021, that number had fallen to 11. Taken alone, this could look like a collapse in the category.

But SEBI changed the multi cap framework in September 2020. Several schemes subsequently repositioned, while Flexi Cap emerged as a separate category. By July 2021, India already had 26 flexi cap schemes, and by July 2026, that number had reached 45.

So the decline in multi cap scheme count should not be interpreted as dozens of funds simply failing or disappearing. Regulatory restructuring changed the classification. The same lesson applies to the passive boom. Scheme counts tell us what changed, while understanding regulation helps explain why it changed.

Closed Ended Funds Were Disappearing At The Same Time

Another major transformation was taking place elsewhere in the industry. While open ended schemes were multiplying, closed ended schemes were disappearing. India had 926 closed ended mutual fund schemes in March 2020, but by March 2022, the number had fallen to 354.

It dropped further to 165 by March 2023 and to only 90 by March 2026. In July 2026, the number stood at just 50, representing a decline of roughly 95% from March 2020. Interval funds also declined sharply, from 23 schemes to only 2.

This matters because looking only at the total number of mutual fund schemes can hide what has happened underneath. India has not simply added more funds. The structure of the mutual fund shelf has changed.

Closed ended products have faded, open ended products have expanded, and within open ended funds, passive products have become one of the biggest sources of new schemes.

Is Passive Investing Actually Winning In India

The answer depends on how we measure it. By scheme count, passive funds have transformed the industry, with their share of open ended schemes increasing from 11.6% in April 2019 to 37.7% in July 2026. By investor participation, passive funds have also grown substantially, with their folio share increasing from 1.9% to around 19.8%.

By AUM, however, the shift has been much more gradual. Passive AUM share increased from 6.2% to 17.7%. That is significant growth, but it remains far below the 37.7% share that passive products occupy on the fund shelf.

The NFO data points in the same direction. Passive products are being launched in large numbers, while many individual launches attract relatively modest amounts of money. So saying passive funds are simply replacing active funds would be too simplistic.

A better conclusion is that passive investing is growing, but passive product supply is growing even faster.

What It Mean For Investors

India no longer has a shortage of passive investment choices. It has hundreds of them. That can be useful because more competition can bring lower costs, new index exposures and better access to different parts of the market. But abundance creates a new challenge.

Investors now need to become better at saying no. A new index does not automatically offer better diversification, a low expense ratio does not automatically make a fund suitable, a passive label does not automatically mean low risk and another NFO does not automatically create an investment opportunity.

The most useful question before adding any passive fund is simple. What does this fund add to my portfolio that I do not already own? If the answer is clear, the fund may have a role. If the answer is not clear, another scheme may simply add complexity.

That is the bigger lesson behind the rise from 104 passive schemes in 2019 to 721 in 2026. The Indian mutual fund industry has already built a massive passive product shelf. The next challenge is not creating more choices, but helping investors understand which of those choices actually matter.