Due to conflicting asset management business models, it has happened that the proper education regarding the advantages of passive investing has not been carried out, according to Hemen Bhatia of Angel One AMC. These two asset management techniques are diametrically opposed.
Over the past five years or so, the amount of money invested in passive investments in India has increased eightfold due to the emergence of digital investment platforms, rising financial knowledge, and changing investor behavior among younger investors. However, the numbers are still much below the trend observed in industrialized countries such as the United States.
Hemen Bhatia, ED and CEO of Angel One AMC, discusses tactics that investors can concentrate on, variables that can further encourage passive investing, and what is still the main cause of this lag. Modified passages:
Investing passively is becoming more popular. What, in your opinion, are the main causes behind the rise in passive investing among younger investors?
Since March 2020, India's passive AUM has increased more than eight times, reaching ₹13.72 lakh crore in November 2025, indicating a distinct change in behavior. This development has been largely driven by the growth of digital investment platforms. We at Angel One AMC are also seeing an increase in the number of young investors who base their portfolios on index funds and exchange-traded funds (ETFs).
The Indian market's structural evolution is a major factor in this change. Markets are now much more efficient due to increased financial penetration and a high concentration of competent active managers. The possibility of continuously beating the benchmark has significantly decreased in a setting where information is readily accessible and shared in real time. Long-term performance trends show that it has been difficult for many active investment strategies to continuously provide returns higher than their benchmarks.
Investors are leaning toward solutions that provide transparency, cost advantages, and predictable index-linked outcomes as they come to terms with this fact. These elements have fueled the quick growth of passive investment in India's asset management ecosystem, together with easy digital access and a favorable regulatory environment.
Since passive-only AMCs don't conflict with active asset management, investor education about the advantages of passive investing has become more prevalent since the emergence of this trend.
We anticipate that more investors will comprehend the long-term advantages of passive investing as a result. Investors are gradually realizing that past alpha measurements—which are frequently displayed in long-term data—were improper prior to these regulatory statements.
As a result, we think that in the upcoming years, all investor categories—including retail—will adopt it at a higher rate than in more established economies!
In the next three to five years, which new passive items do you think will become popular?
We think investors should use a core and satellite asset allocation strategy. Therefore, as an AMC, we provide both broad market and Smart Beta index ETFs & Index Funds in order to achieve this goal.
We believe that broad market index goods should make up the portfolio's core, while Smart Beta index products should make up its satellite.
As a result, the investor receives a market return in the core allocation, which has thus far exceeded inflation—the main goal of equity investing in India.
Smart Beta products, which are rule-based and hence reduce fund manager subjectivity, behavioral biases, and prejudices, may satisfy the expectation of receiving market plus returns in the satellite component of asset allocation.
Thematic funds, in our opinion, might be dangerous because themes are typically fleeting fads that gain popularity quickly.
We anticipate that India will experience similar tendencies to those seen in developed markets, where the classic market-cap-weighted indices have the highest AUM.
Do Indian retail investors completely comprehend the risks associated with passive investing, such as tracking error and liquidity?
Indian investors are aware that tracking inaccuracy is a quantitative factor. In terms of ETF liquidity, the liquidity of passive funds depends on the liquidity of the index's underlying components. Furthermore, the majority of fund companies have common market-making organizations that supply liquidity for their ETF units; as a result, liquidity is available when needed.
Aside from the aforementioned, passive investing eliminates non-systematic risks like choosing stocks and fund managers.
How does Angel One AMC intend to strike a balance between profitability and scalability, given that passive investing usually has lower margins?
However, because they are based on indexes, passive funds are able to manage large AUMs. A passive program based on the US Total Market Index is currently the largest MF scheme worldwide, while a Nifty50 ETF is the largest MF scheme in India.
Significant assets are managed by the biggest asset managers in the world using passive schemes, and in the future, India might follow suit.
Therefore, we view profitability as a result of size, and we are certain that the use of a passive-only strategy will continue to be in line with investor preferences and ultimately help a sizable number of investors.
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