Retail investors drive 12x growth in index funds in less than 4 years: Zerodha Fund House

The total retail folios in index funds increased by close to 12 times from 4.95 lakh in March 2020 to 59.37 lakh in December 2023, showing a remarkable surge in the adoption of index funds among retail investors over the past few years, according to a study by Zerodha Fund House.

The assets under management (AUM) of index funds has recorded a growth of 25x from about Rs 8,000 crore in March 2020 to about Rs 2,13,500 crore as of March 2024.

Notably, debt index funds had seen growth from negligible to no AUM till March 2021 but reached the milestone AUM of Rs 1.1 lakh crore in March 2024. Debt index funds constituted 51.5% of the total AUM and 48.5% was contributed by equity index funds.

“The increasing contribution of folios to the MF industry is incrementally being contributed by index funds. Nearly 11% of new folios last financial year came from index funds. It is only the beginning of a growing trend and Zerodha Fund House is proud to play its part in it. Retail investors increasingly prefer to have simple & transparent exposures with passive products like index funds in their portfolios and this trend is heartening to see,” said Vishal Jain, CEO, Zerodha Mutual Fund.

Many mutual fund houses have launched equity and debt index funds in the last 4 years to cater to the growing appetite and confidence of investors in index funds, The total number of index funds has increased from 44 in March 2021 to 207 in March 2024. This accounts for an absolute growth of 370%. As of March 31, 2024, there are 120 and 87 equity and debt index funds respectively.

The index funds category assets were at a record high of Rs 2.43 lakh crore as of June 2024, and has seen a surge of nearly 900% in assets in the past three years. Across all the other mutual fund categories, index funds witnessed the highest AUM growth (in %) over the past 3 years.

The fund house currently offers two index funds - Zerodha Nifty LargeMidcap 250 Index Fund and Zerodha ELSS Tax Saver Nifty LargeMidcap 250 Index Fund. These funds are open-ended schemes tracking Nifty LargeMidcap 250 Index and Nifty LargeMidcap 250 Index respectively.

Zerodha ELSS Tax Saver Nifty LargeMidcap 250 Index Fund is an open-ended passive equity linked savings scheme with a statutory lock-in period of three years and tax benefit tracking Nifty LargeMidcap 250 Index.