Introduction
Investing is no longer limited to just picking individual stocks or putting money into fixed deposits. Over the last few years, passive investing through index funds and Exchange-Traded Funds (ETFs) has gained massive popularity worldwide—and 2025 is proving to be the breakout year for this trend.
As global markets become more uncertain, retail and institutional investors alike are realizing that beating the market consistently is difficult. Instead of trying to pick “the next big stock,” many are choosing to ride the market itself through index-based investing.
In this blog, we will explore what index funds and ETFs are, why passive investing is growing so rapidly, key advantages, risks, and whether you should consider them in 2025.
What is Passive Investing?
Passive investing is a strategy where investors put money into portfolios designed to mirror the performance of a specific market index (such as the Nifty 50, S&P 500, or Sensex) instead of actively choosing and trading individual stocks.
The idea is simple: rather than trying to beat the market, you just follow it. Since most active managers struggle to outperform benchmarks consistently, passive investing ensures that you get market-matching returns at low cost and minimal effort.
Index Funds vs ETFs – What’s the Difference?
Although both index funds and ETFs fall under passive investing, they have some structural differences:
| Feature | Index Funds | ETFs (Exchange-Traded Funds) |
|---|---|---|
| Trading | Bought/sold once per day at NAV price | Traded throughout the day like stocks |
| Minimum Investment | SIPs from as low as ₹500 | Requires buying at least 1 unit (varies) |
| Costs | Slightly higher expense ratios | Very low expense ratios |
| Liquidity | Less liquid compared to ETFs | Highly liquid, can be bought/sold anytime |
Why is Passive Investing Gaining Momentum in 2025?
Now let’s understand why passive investing, especially through index funds and ETFs, is exploding in popularity this year.
1. Difficulty of Beating the Market
Multiple studies have shown that over 80–90% of active fund managers fail to outperform their benchmarks consistently over long periods. In India too, many actively managed equity funds have struggled to beat the Nifty 50 or Sensex in recent years.
2. Low Cost Advantage
Passive funds have much lower expense ratios compared to active funds. For example:
- Actively managed equity funds may charge 1.5% – 2% annually.
- Index funds and ETFs typically charge 0.1% – 0.5% annually.
Over the long term, this cost difference significantly boosts returns. In an era where investors are more cost-conscious, low-cost passive investing is naturally appealing.
3. Global Trend Towards Passive Funds
In the U.S., over 50% of assets in equity mutual funds are now in passive strategies. Giants like Vanguard, BlackRock (iShares), and State Street are leading the charge.
India is catching up fast. As of 2025, passive funds account for nearly 20–25% of total mutual fund assets, and experts predict this could rise to 40% in the next 5 years.
4. Digital Platforms & Easy Access
Thanks to fintech apps and digital brokers, investors can now buy index funds and ETFs in just a few clicks. This accessibility has democratized investing for retail investors, fueling adoption in 2025.
5. Growing Awareness of Financial Literacy
Social media, YouTube finance influencers, and government campaigns have made investors more aware of terms like SIP, index funds, ETFs, diversification, and compounding. The younger generation is more inclined toward simple, transparent, and low-cost investments, pushing passive investing further into the mainstream.
6. Better Long-Term Returns with Less Stress
Active investing requires constant monitoring, research, and risk-taking. Passive investing, on the other hand, is “set it and forget it.” Since stock markets tend to go up in the long run, staying invested through index funds or ETFs has historically delivered double-digit returns over decades.
In 2025, investors are prioritizing peace of mind and financial security, making passive strategies even more attractive.
Also Read : Tata Gold Exchange Traded Fund
Advantages of Passive Investing
Passive investing comes with several strong advantages that make it a preferred strategy for long-term wealth creation. The biggest benefit is low cost—index funds and ETFs generally charge minimal expense ratios compared to actively managed funds, which means more of your returns stay with you over time. Another advantage is diversification; with just a single investment, you gain exposure to anywhere between 50 and 500+ companies across different sectors. This spreads risk and reduces the impact of any one company’s poor performance.
Transparency is another key benefit because the performance of a passive fund is directly linked to its benchmark index, making it easy for investors to track progress. Moreover, passive funds are more tax efficient since there is lower portfolio churn, resulting in fewer taxable events. Perhaps the most attractive aspect is their ability to generate long-term growth. Over the years, index funds and ETFs have consistently outperformed inflation and provided steady wealth creation, making them a reliable choice for investors who prefer simplicity and discipline.
Risks of Passive Investing
Despite their many advantages, passive investments also carry certain risks. One major drawback is that they offer no outperformance. Unlike active funds where a skilled manager might generate higher returns, index funds and ETFs only aim to match the market’s performance, never beat it. Investors must also be prepared for market volatility, since if the broader market declines, their passive investments will fall as well.
Another concern is sector concentration. For example, the Nifty 50 index is heavily weighted toward banking and IT stocks, which means a slowdown in these sectors could significantly affect the overall performance of the fund. However, for most long-term investors, these risks are manageable, especially when compared to the higher costs, uncertainties, and complexities of active investing.
Index Funds & ETFs in India – Popular Options in 2025
As passive investing continues to gain momentum in India, several index funds and ETFs have emerged as popular choices among investors in 2025. The Nippon India Nifty 50 ETF and the SBI Nifty Index Fund remain strong favorites for those looking to mirror the performance of India’s leading benchmark indices. The HDFC Index Fund – Sensex Plan is another well-regarded option for investors who prefer exposure to the 30 large-cap companies listed on the Sensex.
For those who want to diversify further, the UTI Nifty Next 50 Index Fund provides an opportunity to invest in the rising stars of the Indian market—companies that are just below the top 50. The ICICI Prudential Nifty ETF also attracts investors with its liquidity and reliability. For international diversification, many investors in India are also turning to the Motilal Oswal NASDAQ 100 ETF, which offers exposure to global technology giants like Apple, Microsoft, and Amazon. Collectively, these funds provide Indian investors with a wide range of passive investment options across both domestic and international markets.
Passive vs Active Investing – Which Should You Choose?
| Feature | Active Funds | Passive Funds |
|---|---|---|
| Goal | Beat the market | Match the market |
| Costs | High (1.5–2%) | Low (0.1–0.5%) |
| Management | Professional stock pickers | Automated, index-linked |
| Risk | Higher (manager bias) | Market-level risk |
| Returns | Inconsistent | Steady, market-like returns |
conclusion
As we move through 2025, it’s clear that passive investing through index funds and ETFs is no longer just a trend, it’s the future of investing.
With low costs, simplicity, transparency, and competitive long-term returns, passive strategies are helping millions of investors build wealth without stress.
If you’re still stuck deciding between active and passive, remember this: time in the market is more important than timing the market. Passive investing gives you the discipline and consistency to stay invested and let compounding do its magic.
So, whether you’re a beginner just starting with SIPs or an experienced investor diversifying your portfolio, index funds and ETFs deserve a place in your investment journey in 2025.