Motilal Oswal on Wednesday released a report highlighting the behavior of young investors, especially Gen Z and Millennials, in the market. Gen Z and Millennials are increasingly favoring index funds over ETFs due to better returns and liquidity.
In comparison to older investors, younger investors are showing stronger inclination towards index funds. 46% of younger investors prefer index funds compared to 35% of older generations like Gen X and Boomers.
Millennials and Gen X show interest in Factor or Smart Beta Funds, which shows a preference for innovative investment strategies.
In 2024, 80% of investors increased their investments in passive funds, a significant increase from 53% in the previous year, making passive funds a major part of investor portfolios.
The report stated that 57% of respondents were investing in ETFs in 2024, marking an increase from 41% in 2023. Out of these 57%, 26% invest exclusively in ETFs, while 31% have diversified their investments between ETFs and index funds. 81% of investors reported to keep their passive investments for more than three years.
Sectoral indices like Nifty IT and Nifty Bank are selected by 67% of respondents, making them top choices for passive fund investors whereas indices such as the Nifty 50 and Nifty 500 are preferred by 61% of investors.
Commodities and Smart Beta Funds are becoming more popular, especially in financial hubs like Mumbai and Ahmedabad. 63% investors are citing better risk-adjusted returns as the main reason for opting for passive funds.
The combined AUM of passive funds has surged from Rs 7 lakh crore in September 2023 to over Rs 11 lakh crore by September 2024, with 1.5x growth in one year driven by technological advancements, regulatory support, and improved financial literacy.
