THE RISE OF PASSIVE INVESTING: EXAMINING INDEX FUND ADOPTION AMONG INDIA'S RETAIL INVESTORS GROWTH, STRUCTURAL INCENTIVES, AND THE GAP BETWEEN HEADLINE NUMBERS AND RETAIL PARTICIPATION

Passive investment products, index funds and exchange-traded funds that track a market benchmark rather than relying on active stock selection, have grown sharply in India over the past several years, with industry assets under management rising more than sixfold since 2019. Survey evidence suggests retail investor awareness and stated adoption of passive products has grown substantially in parallel. This paper reviews the scale of that growth using Association of Mutual Funds in India data and industry survey findings, and then examines a structural tension largely absent from the growth narrative: despite rising retail interest, retail investors' actual share of total passive fund assets under management remains small, a gap this paper argues is best explained by distributor incentive structures that continue to favour actively managed products. The paper concludes that the passive investing story in India is one of genuine but structurally constrained retail participation, rather than a straightforward account of retail investors abandoning active management.