10 months ago
FOMO Drives Investors to Passive Funds, Doubling Growth in September
Imagine you have a piggy bank for your money.
Some piggy banks grow by trying to pick the best toys (these are like 'active' funds).
Others just copy what a popular group of toys is doing (these are 'passive' funds, like index funds).
In September, a lot more people started putting their money into the 'passive' piggy banks, especially those that follow gold and silver.
This is because gold and silver prices went up a lot really fast, and people got scared they would miss out on making money.
It's like seeing your friends having fun with a new game and wanting to play too, even if it's just for a little while.
While these passive funds grew very fast, the 'active' piggy banks still hold most of the money because they have been around longer.
Experts think this jump to passive funds is mostly because of the excitement about gold and silver right now, and not necessarily because people don't like the 'active' way of investing anymore.
They believe that when the excitement for gold and silver calms down, people will remember that investing in companies (equities) is important for long-term growth.
Passive funds experienced 2x growth compared to active funds in September, largely due to FOMO among investors.
Precious metal ETFs (gold and silver) saw a surge in new accounts, adding about one million folios as prices rose significantly.
Experts attribute the trend to investor reaction to recent performance and accessibility of ETFs, rather than a fundamental shift from active to passive investing.
Active equity funds still dominate the market with approximately 175 million folios, representing nearly 70% of the industry.
Industry participants believe the surge in passive funds is a temporary, momentum-led rotation, and active equity dominance is expected to continue in the long term.
- Who
- Retail investors and mutual fund houses
- What
- A significant increase in investment into passive funds, particularly precious metal ETFs, driven by FOMO and recent high returns.
- Where
- India
- When
- September 2025
- Why
- Fear of missing out on recent surges in gold and silver prices, accessibility of ETFs for smaller investments, and festive season demand.
Short-term Speculation
Long-term Structural Growth
Nature of Investment Shift
Short-term Speculation
The surge in passive funds, particularly precious metal ETFs, is driven by FOMO and a reaction to recent high returns (40-60%) in gold and silver, suggesting a temporary, sentiment-driven rotation rather than a fundamental shift.
Long-term Structural Growth
While recent performance is a factor, the long-term growth in passive investing, especially in equities, is a structural theme as investors recognize India's growth story and the benefits of equity participation.
Investor Motivation
Short-term Speculation
Investors are chasing hot asset classes like gold and silver due to fear of missing out on future returns, attracted by the quick, albeit potentially volatile, gains.
Long-term Structural Growth
Growing investor realization about participating in India's economic growth necessitates long-term equity allocation, which will continue to rise despite brief inflows into other asset classes.
Asset Allocation Strategy
Short-term Speculation
The current interest in metals is tactical, with advisors recommending limited (10-15%) allocation to these assets as part of a balanced, multi-asset approach, recognizing their sensitivity to macroeconomic conditions and potential for reversals.
Long-term Structural Growth
The increase in passive folios, including equity index funds, is part of a broader, steady growth in equity investments that will continue in the long run, unaffected by temporary shifts.
Key facts
- Passive Fund Growth (Sept)
- 2X compared to active funds
- New Passive Accounts (Sept)
- 1.2 million (2.1 million including FoF)
- New Active Equity Folios (Sept)
- 1.4 million
- Total Active Equity Folios
- ~175 million
- Total Industry Folios
- ~252 million
- New Precious Metal ETF Accounts (Sept)
- ~1 million
- Gold/Silver Return Surge (Recent)
- 40% to 60%
Quotes
Kalpen Parekh
MD and CEO of DSP Mutual Fund
“Investors must know gold and silver have seen periods of zero to negative returns like stocks. If they do not have gold, then it is fair to have about 10 per cent in gold as part of asset allocation and a better way to build that is via SIP.”
businesstoday.in
“This has got nothing to do with active or passive investing. It is a rush for hot asset classes. Gold and silver have run up by 40 to 60 per cent. It is classic human behaviour to be lured by fast-moving asset classes.”
businesstoday.in
Akhil Chaturvedi
Executive Director and Chief Business Officer at Motilal Oswal MF
“Equities will continue to grow steadily. Some allocation may shift temporarily, although much depends on how prices move from here. Investors should remain balanced and not overload on assets that have seen sharp upswings in a short time. There is always the possibility of reversals.”
businesstoday.in
“The stupendous rise in the prices of gold and silver has pushed investors to shift their allocation. There is FOMO and people do not want to lose future return opportunities.”
businesstoday.in
Sandeep Bagla
CEO of Trust Mutual Fund
“People have realised that participating in India’s growth story means being invested in equities. Short-term outperformance in another asset class may slow equity inflows briefly, although overall equity allocation will continue to rise.”
businesstoday.in
“The recent surge in gold and silver is purely due to FOMO. Momentum in precious metals is attracting investor interest.”
businesstoday.in
Akta Sehgal
Founder of Manas Wealth
“Once prices correct, enthusiasm will cool. Our approach has always been balanced allocation, not chasing whichever asset is running.”
businesstoday.in
“Physical gold has become expensive. ETFs allow small contributions while still feeling part of the rally.”
businesstoday.in
Shifali Satsangee
Pune advisor of Funds Ve’daa
“We look at precious metals ETF investing as a part of tactical allocation. We define a maximum 10 to 15% allocation for such exposure. Metals are more sensitive to macroeconomic conditions, so multi-asset funds often work better for conservative investors.”
businesstoday.in
