Passive investing explosion: DSP’s Anil Ghelani predicts ETFs, index funds will command 30% of mutual fund industry

Published 28 June 2026 · finance

A massive structural shift is underway in India’s mutual fund landscape. Anil Ghelani, Head of Passive Investments at DSP Mutual Fund, predicts that low-cost passive

A massive structural shift is underway in India’s mutual fund landscape. Anil Ghelani, Head of Passive Investments at DSP Mutual Fund, predicts that low-cost passive funds, currently holding a 17% market share, will command 30% of the industry’s total assets within five years. This explosive growth marks a permanent evolution in how Indian retail investors build long-term wealth.Passives are becoming increasingly popular in India with the launch of several new products suited to meet the needs of different kinds of investors. How popular do you think ETFs will become in the next five years?In the US, we have already seen passive funds, i.e. ETFs and index funds, take over in size, with AUM exceeding 50% of the total mutual fund industry. In India, we are gradually seeing this growth. Today, ETFs and index funds account for about 17% of the total mutual fund industry AUM, which, in my view, could grow to 30% in the next five years.However, the more interesting trend would not be the growth in the size of ETFs, but the evolution of investor behaviour. We often spend a significant amount of time trying to identify the next big stock idea or chasing a star fund manager, whereas there are more important aspects that we miss out on: prudent asset allocation aligned with our life goals, and staying invested until we reach them. ETFs and index funds will be natural beneficiaries of this shift.In the coming years, passive investing is likely to become a much larger part of investors’ portfolios as a core allocation, while active funds will be selectively used as satellite allocations for alpha opportunities.The consensus used to be that India is an inefficient market where active managers will always beat the index.

However, information is now real-time, and alpha in the large-cap space is shrinking. In which segments do you think active management still holds an edge, and where is passive now the obvious choice?While ETFs and index funds can be used across market-cap segments and sectors to build a portfolio, the largest AUM today is still in large-cap passive funds. In my view, the case for passive investing is strongest in the large-cap segment.In the small-cap and micro-cap segments, the stock universe is much larger, and there is greater potential for bottom-up research, management assessment and identifying under-researched stocks. So, active management may continue to have an edge in these segments and in certain niche sectors. That said, such outperformance potential often comes with higher volatility and manager-selection risk.Hence, for core portfolio allocations, passive strategies are increasingly becoming the default choice. I have always believed that “and” is better than “or”. We will see a thoughtful blend where passive strategies form the core of a portfolio, while active strategies are used selectively in areas where alpha opportunities exist.When an investor is looking at a theme, such as large caps, how should they decide between an ETF and an index fund? What are the liquidity and execution realities of trading ETFs on Indian exchanges that retail investors often overlook?When investors compare an ETF and an index fund tracking the same benchmark, it is important to remember that both aim to deliver the same index return.