Passive Fund Flow significance: Retention and Materiality in August 2026

HOW PASSIVE FUNDS FARED ON FLOW SIGNIFICANCE?

One of the key methods to evaluate passive funds is through flows. For the month of August 2026, Passive Funds saw net inflows of ₹10,876 crore. In understanding the performance of respective categories of passive funds, it is the significance of these flows that matter; and not just the quantum and direction of the flows.

How do we measure significance in practice? We measure significance in terms of the retention and materiality features of flows. Obviously, we have used proxies. The ratio of net flows to gross flows into passive funds is a proxy for flow retention. In addition, the ratio of net flows to net AUM is a proxy for flow materiality.

A good measure of significance is exhibited when you combine retention and materiality. The combined ranking method used by us, factors retention and materiality into passive fund rankings for August 2026. The combined rank is an arithmetic average of the two ranks. The table below is a ranking on this combined rank score.

Data Source: AMFI (# NF – Net Flows; GF – Gross Flows)

METHODOLOGY - HOW WE RANKED PASSIVE FUND FLOWS

• Passive funds here include 3 categories as defined by AMFI; index & commodity-based funds, index & commodity-based ETFs, and FOFs investing overseas.

• Passive funds were first ranked by retention, which is the ratio of net flows to gross flows. For passive funds as a whole, this retention ratio stood at 29.97% for Aug-26.

• Then these passive funds were ranked by materiality, measured by the ratio of net flows to net AUM. For passive funds as a whole, this materiality ratio stood at 0.68%.

• A combined rank is obtained by taking an arithmetic average of the retention rank and the materiality rank, which gives a view of flow significance of passive funds.

INTERPRETING THE 3 LEVELS OF CLASSIFICATION IN SIGNIFICANCE RANK?

• The top five funds shaded in yellow are the passive categories where the flows are the most significant in terms of the combined rank. These fund categories scored high on retention of flows and also scored high on materiality of flows.

• Out of the top 5, Hybrid ETFs and Hybrid Funds are more due to a small base and recent reclassification. However, gold ETFs, equity ETFs, and silver ETFs are indicative of where most of the passive flows are currently gravitating towards.

• The next-3 shaded in light green are the cases where the flows are only modestly significant among passive funds. It includes fund categories like equity index funds, ETFs investing overseas, and other ETFs; where there is no strong category USP.

• These 3 funds shaded in light green, represent funds that have not been the top pick for passive fund investors. However, they continue to see positive inflows. The retention and materiality is significantly lower in this category.

• The third category (in blue) represents categories where net flows are negative. They have been low on investor interest for some time or have seen interest levels go down. Debt funds, Debt ETFs, and FOFs investing overseas fall in this segment.

• In the case of debt funds, the outflows are understandable as an index debt product is unlikely to be preferred at a time when rates are expected to go up in tandem with inflation. FOFs investing abroad have seen too many imposed restrictions.

On the passive front, there is a clear shift away in flows from debt index products towards equity index, gold and silver backed products.