Index Funds show highest growth in SIP AUM segment, Zerodha AMC data suggests

Index funds have experienced significant growth in Systematic Investment Plan (SIP) Assets Under Management (AUM) over the past year, reaching close to 85%, according to a study conducted by Zerodha Fund House. The number of live SIP accounts has also increased by approximately 80% during the same period. Index funds were introduced to help investors overcome the challenges associated with selecting a portfolio of securities that aligns with their financial objectives.

As of September 30, 2024, individual investors account for over 60% of all index fund AUM, with the remaining AUM held by corporates and other institutions. Although the average ticket size of index funds is similar to that of the overall industry, the growth rate for index funds has been higher at 14% compared to 8% for the industry as a whole.

Over the past five years, the Index Fund category has seen a substantial 12x growth in its contribution to the mutual fund industry's folios, as highlighted in the study conducted by Zerodha Fund House.

"As awareness and accessibility continues to grow, Index Funds are well-positioned to become a go-to investment avenue for retail investors seeking to take exposure to the Indian economy in a simple, cost-effective manner," said  Vishal Jain, CEO of Zerodha Fund House. 

What led to such growth

As per Zerodha AMC data, individual investors now hold over 60% of all index fund AUM.

The trend indicates a move away from the previous prevalence of institutional investors towards a focus on retail investors.

The user-friendly nature and availability of index funds have garnered interest from retail investors looking for a simple way to invest in the overall market.

In contrast to actively managed funds that depend on fund managers for security selection, index funds merely mirror the performance of a market index like the Nifty 50.

This passive strategy leads to reduced management fees and expenses, making index funds an attractive option for investors with a long-term perspective.

Index funds have shown stronger growth in SIP ticket sizes compared to other mutual fund categories. The average ticket size in index funds has increased by 14%, surpassing the industry-wide growth of 8%. This trend reflects a growing trust in index funds as a reliable investment option.

In the past five years, index funds have gained a larger share of total mutual fund folios. In September 2019, index funds accounted for just 0.43% of the industry's total folios. By September 2024, this share had risen to around 5%.