Passive flows taper in Feb-26, but still leads in yearly growth

WAS THIS THE YEAR OF PASSIVE FUNDS?

In a sense, the fiscal year FY26 can be said to be the year when the passive funds came of age in India. It is not just about the flows, which tend to be volatile over time. The real story is about the folio growth, and to a lesser extent, the AUM growth. If you look at the folio growth, it has grown 36.2% YOY to 5.57 crore, which is a massive jump in one year. One can say that bulk of the folio accretion came from gold and silver ETFs, but that is the nature of cyclicality of flows. Out of the 12 categories of passive funds, only 2 categories saw contraction in folios, while the rest saw folio expansion on yoy basis.

PASSIVE FLOW STORY IN FEBRUARY 2026

Overall passive fund flows at ₹13,879 crore in February 2026 was sharply lower than January 2026. However, that was more due to the precious metals frenzy tapering.

1. In February 2026, gold ETF flows continue to lead the show at ₹5,255 crore, but it is nearly 85% lower than the record flows witnessed in January 2026.
2. Silver ETF flows, which was the other big driver in January 2026, actually turned negative in February amidst the volatility in silver prices.
3. The other significant flows were seen in equity index ETFs and equity index funds, while the flows into debt ETFs were relatively modest in the month.
4. Among the fund of funds (FOFs) investing overseas, there was demand for global active funds, while global passive funds saw negative flows.

WHAT WE READ FROM THE FOLIO AND AUM STORY IN FEB-26

While AUM captures the firepower of a fund category, it is folios that actually captures the retail intensity of demand. Passive funds saw growth on both fronts.

1. Let us look at folio growth in the month of February 2026. Silver ETFs at 746%, Gold ETFs at 76.9%, and non-TMIF debt funds at 76.1% were the big folio growth stories of February. Of course, non-TMIF debt funds grew on a much smaller base.
2. The sharp spike in the folio in silver and gold ETFs is understandable. In calendar 2025, gold rallied over 70%, while silver rallied by more than 200%. This attracted a lot of retail investors, who saw these ETFs as a proxy for physical gold.
3. What about the AUM growth story on yoy basis. Again, it was silver ETFs at 557% and gold ETFs at 229.3% that ruled the roost. That is hardly surprising considering the sharp spike in price of both these metals over the last 1 year.
4. Apart from gold and silver ETFs, there was also substantial AUM accretion in FOFs in global active funds at 61.9%, domestic equity index funds at 41.1%, and equity index ETFs at 27.5%. Indexing as a strategy appears to have picked up in volatile markets.

5.The financial year FY26 saw two key trends emerging. Firstly, there was a distinct shift towards passive equity as an asset class. It gives asset exposure with lower risk. Secondly, the demand for gold and silver was not just about price play, but also about offering a hedge to the overall portfolio, when correlations reverted to the normal!