Passive funds on rise: ICICI Prudential MF’s Chintan Haria tells how to tap the opportunity

Passive funds have remained in focus among both investors and mutual fund houses. Data shows that mutual funds launched as many as 115 passive schemes (including index funds, Gold ETF, Other ETFs and fund of funds investing overseas) during the ongoing calendar year till September 2025.

Meanwhile, the net assets under management (AUM) of passive funds surged over 16% to Rs 12.99 lakh crore on a year-to-date basis till September 2025. The figure was hovering around Rs 2.38 lakh crore in September 2020. So, what has made passive funds so popular?

In an exclusive interaction with Business Today, Chintan Haria, Principal-Investment Strategy, ICICI Prudential Mutual Fund, shared his insights and explained how investors can build wealth through index funds. Edited excerpts:

BT: What factors have driven the growth of passive funds?

Haria: Index funds have evolved from a specialised product into a mainstream choice for domestic investors. Greater cost awareness, Sebi’s reclassification, and the ease of digital distribution have driven adoption. Consistent SIP inflows have also added depth. Index funds have steadily carved out space in the last five years. As of August 2025, their AUM crossed Rs 3 lakh crore, up from Rs 2.7 lakh crore a year earlier, with nearly 64% in equities. By folios, they now form about 6% of the mutual fund investor base. This reflects a behavioural shift towards low-cost diversification.
 
BT: How can an investor choose an index fund?

Haria: When choosing an index fund what matters is the benchmark. For instance, broad indices like the Nifty50 suit core allocations, while thematic or sectoral indices may play a supplementary role. Investors should align the selected fund with their investment horizon, goals, and risk tolerance. A fund that mirrors its index with minimal deviation is ideal. The pedigree of the fund house also matters.
 
BT: Where do you see the AUM of index funds over the next five years?

Haria: Passive investing has grown rapidly in India over the past few years driven by increasing investor awareness and the growing appeal of low-cost strategies. Institutional participation and broader market accessibility further reinforce this trend. Index fund AUM has grown by 12% as witnessed in last year. Structural drivers such as cost efficiency, regulatory clarity, and institutional adoption are likely to help sustain momentum in index funds.
 
BT: How do you see the movement of benchmark indices Nifty and Sensex over the next 5-10 years?

Haria: Despite global macroeconomic challenges, the country’s fundamentals remain robust. Supportive government and RBI policies are positives for India’s business cycle, which may lead to stronger economic growth and a pickup in corporate earnings.

Over longer horizons, equities tend to reflect earnings growth plus inflation. The Sensex and Nifty have delivered around 11-12% CAGR historically (last 10-year period), and if India sustains its growth trajectory, similar compounding is plausible over the next decade. In the interim, volatility may persist, but the market is likely to trend higher if earnings are supportive. Given this setting, investors can benefit from broad market exposure and savvy investors can opt for factor-based offerings.
 
BT: What is the key to making big money from index funds?

Haria: Index funds are designed as long-term wealth builders rather than trading tools. Investors should ideally give at least 5-7 years for the compounding benefits of equities to play out. Shorter horizons expose them to market cycles and timing risk. Over a decade or more, the simplicity of holding the market index helps capture the broad economic upside with minimal friction. Patience, rather than activity, is the winning ingredient when it comes to passive investing.