Affluent Investors Shift to Passive Funds: Share Triples by 2026

High net-worth individuals (HNIs) are significantly increasing their allocation to passive investment strategies, with their share in passive fund assets nearly tripling from 6.6% in March 2021 to 19.9% by March 2026. This data, compiled by Amfi and CRISIL Intelligence, highlights a clear shift away from traditional actively managed funds among affluent investors. The primary motivation for this pivot is the pursuit of more predictable portfolio returns and consistent wealth creation.

A growing number of actively managed equity schemes have struggled to consistently outperform their benchmarks, making predictable returns a major draw for HNIs. Passive schemes offer capital preservation and mitigate additional risks linked to individual fund manager performance. There is also a broader recognition that active management does not consistently guarantee superior returns.

Wealth managers are actively facilitating this trend by recommending advanced passive strategies. These include smart-beta products, which focus on efficient alpha generation, cost-effectiveness, beneficial tax implications, and robust portfolio construction. For investors with substantial capital, the inherent predictability of passive schemes is a key factor.

Retail Investor Trends and Future Outlook

Conversely, the surge in HNI engagement with passive funds has coincided with a decline in retail investors’ share, which fell from 13.4% in March 2021 to 9.1% in March 2026. This divergence is partly attributed to a strong rally in mid- and small-cap funds until late 2024. That rally enticed retail investors towards actively managed schemes, driven by the hope of achieving higher alpha.

However, industry experts anticipate this gap may not persist in the long term. Passive strategies are expected to expand beyond traditional large-cap indices into other market segments, becoming better understood by a wider investor base. This increased awareness is projected to eventually extend passive fund adoption to retail investors as well.

While affluent investors initially adopted passives faster due to greater access to data and professional financial advice, retail investors are likely to gradually increase their allocation. As passive strategies gain broader acceptance and understanding, their appeal is set to grow across all investor segments.