Equity and passive funds gain prominence as investor allocation shifts over 5 years: ICRA Analytics

Investor allocation across mutual fund categories has undergone a notable shift over the past five years, with equity and passive products emerging as key drivers of growth, according to a press release by ICRA Analytics.

Total mutual fund AUM increased from Rs 35.32 lakh crore in July 2021 to Rs 85.76 lakh crore in July 2026, registering a growth of around 143%. Equity AUM rose by around 224% during the period, from Rs 11.87 lakh crore to Rs 38.40 lakh crore, while debt AUM increased by around 27%, from Rs 15.28 lakh crore to Rs 19.46 lakh crore.

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Passive funds, comprising ETFs and Index Funds, recorded an even sharper increase, with combined AUM rising by around 324% from Rs 3.57 lakh crore in July 2021 to Rs 15.15 lakh crore in July 2026 and the trend reflects growing investor preference for market-linked exposure, diversification and cost efficient investment options.

The folio trend further reinforces this shift. Total mutual fund folios increased from 10.55 crore in July 2021 to 28.09 crore in July 2026. Passive fund folios increased more than fivefold from 0.92 crore to 5.54 crore, while equity folios rose from 7.18 crore to 18.75 crore.

In contrast, debt-oriented folios increased only marginally from 0.81 crore to 0.95 crore. Hybrid schemes have also witnessed consistent expansion, reflecting continued investor interest in diversified investment strategies.

Fund flows present a more nuanced picture, with monthly flows varying across categories over the five-year period. Net inflows into debt-oriented funds increased by 192.5%, while equity funds recorded a 19.0% increase. Passive products also continued to attract positive flows, with ETF net inflows rising by 70.8% over the period.

“The five-year trend indicates that investor allocation within mutual funds is undergoing a meaningful structural change. Equity continues to remain the primary growth engine, while passive products have steadily gained relevance as investors increasingly seek transparent, cost efficient and diversified market exposure,” said Ashwini Kumar, Senior Vice President and Head Market Data, ICRA Analytics.

“The sharp rise in both AUM and folios, particularly across equity and passive categories, suggests that this trend is supported by a broadening investor base and is not simply a function of short-term market movements,” Kumar further said.

The release further said that it expects equity to remain the primary growth engine, while passive products are likely to capture a larger share of incremental allocations. Hybrid funds should continue to find favour among investors seeking diversification, while debt funds would track rate movement for higher allocation.

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Overall, the five-year AUM, folio and flow trends indicate that the mutual fund industry is gradually moving towards an equity and passive-led allocation, making this a structural shift rather than a temporary change in monthly flows.

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