India's Investment Revolution: Young Investors Drive Surge in Index Investing

Motilal Oswal's report reveals a transformative wave in India's investment ecosystem, fueled by the younger generation's preference for index funds. Significantly, 80% of investors are boosting passive fund allocation in 2024. Index and ETFs show incredible growth, as sectoral indices and Smart Beta Funds gain popularity.

India's investment landscape is witnessing a transformative wave, led by the younger generation's increasing preference for index funds, according to a recent report by Motilal Oswal. This shift is marked by a significant 46% of younger investors favoring index funds, in contrast to just 35% among Gen X and Baby Boomers.

Gen Z and Millennials' inclination towards innovative investment strategies is further underscored by their interest in Factor or Smart Beta Funds. The growing appeal of passive funds is evident, with 80% of investors in 2024 upping their allocation to these funds, a stark rise from the previous year's 53%.

ETFs are also gaining ground, with 57% of survey respondents investing in them, compared to 41% in 2023. This trend aligns with a commitment to long-term investment, as 81% of investors plan to hold onto their passive investments for over three years, reflecting sustained confidence in their potential growth.

Sectoral indices like Nifty IT and Nifty Bank lead the pack for passive fund investors, chosen by 67% of respondents. Additionally, the Nifty 50 and Nifty 500 benchmarks remain popular, picked by 61% of participants. Commodities and Smart Beta Funds are seeing traction, especially in financial centers like Mumbai and Ahmedabad.

The allure of passive funds, including index funds and ETFs, lies in their ability to replicate benchmarks like the Nifty 50, offering investors cost-effective and reliable returns. An impressive 63% of investors cite better risk-adjusted returns as the main attraction for passive funds.

Overall, the Assets Under Management (AUM) for passive funds have experienced remarkable growth, jumping from Rs7 lakh crore in September 2023 to over Rs11 lakh crore by September 2024, driven by technological advancements, regulatory support, and enhanced financial literacy.

(With inputs from agencies.)