India's investment ecosystem is undergoing a seismic shift, with index investing gaining unprecedented traction among investors, according to a report by Motilal Oswal.
The younger generation, including Gen Z and Millennials, shows a stronger inclination towards index funds as compared to older investors. They also prefer index funds over ETFs for better returns and liquidity. A recent report by Axis AMC also highlighted the growing appetite for ETFs, which witnessed net sales of Rs 15,403 crore in October 2024.
While 46% of younger investors favor index funds, only 35% of Gen X and Boomers do so. Millennials and Gen X investors also have a keen interest in factor or smart beta funds, reflecting their appetite for innovative, albeit aggressive investment strategies.
Passive funds have become a core component of investor portfolios, with 80% of investors increasing their allocation to these funds in 2024, compared to 53% last year. The Axis report echoed similar sentiments, noting that net sales in the passive category inched up to Rs 8,025 crore in October 2024.
The combined assets under management (AUM) of passive funds have surged from Rs 7 lakh crore in September 2023 to over Rs 11 lakh crore by September 2024—a 1.5x growth in just one year.
The survey also noted a growing popularity of ETFs, with 57% of respondents investing in them, up from 41% in 2023. Of these, 26% invest solely in ETFs, while 31% have diversified between ETFs and index funds.
This rising preference is matched by a commitment to long-term investment. A significant 81% of investors plan to hold their passive investments for over three years, highlighting sustained confidence in the growth potential of these funds. Sectoral indices like Nifty IT and Nifty Bank dominate as the top choice for passive fund investors, selected by 67% of respondents. Benchmark indices such as the Nifty 50 and Nifty 500 follow closely, preferred by 61% of investors.
A recent, similar report by stock broker Angel One also throws a spotlight on how young India plans and prefers mutual funds when it comes to savings and investments. The report, titled "Young Indians' Saving Habits Outlook 2024," compiled by Fin One, stated that 45% of respondents aged 22-35 have made it a point to save up some of their savings in mutual funds. A year ago, this figure stood at just 32%.
Most of these investors make their way into mutual funds via SIPs, or systematic investment plans. 52% of respondents in the age cohort of 22-35 are now using SIPs to invest in mutual funds, up from 44% in the previous year.
As for what was the driving factor behind beginning their investment journey, 42% underlined the past performance of funds, while 38% noted that advice from financial advisors remained a key consideration. 38% of young Indians are now increasingly focusing on building an emergency corpus, compared to 28% the year before. This shift underscores the drastic change in financial sensibilities brought forth by the pandemic and the consequent desire for greater financial resilience. In fact, approximately 4 out of every 5 surveyed investors maintained a dedicated, separate savings account.
Out of the 1,650 individuals studied under the FinOne survey, a staggering majority made their first foray into the stock market in their early twenties. Nearly 2 in every 5 investors pick stock as their preferred choice of investment, followed by mutual funds and then savings bank accounts. While 45% of those surveyed picked stocks as their chosen investment avenue, 20% preferred mutual funds, and 15% wanted to keep their money in a savings bank account.
Gen Z and Millennials prefer stocks and mutual funds; index funds trump over ETFs, say recent reports
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