What Are Indian Investors Buying? Equity, Passive & Hybrid Funds Gain Ground

The growth of India's mutual fund industry is being accompanied by a clear change in what investors are choosing. Between March 2021 and March 2026, the combined share of equity and passive funds in industry AUM increased from 41% to 62%, while debt's share fell from 42.3% to 22.4%. 

Equity remains the largest category, but passive and hybrid products have also gained importance. Within equity, FY26 inflows were led by flexi-cap, small-cap and mid-cap funds, while passive flows reached ₹2.1 lakh Cr. 

Equity and passive funds now dominate mutual fund assets

The biggest change in the industry's portfolio mix has been the increasing weight of equity and passive funds.

• Equity schemes accounted for 43.4% of industry AUM in March 2026, up from 31.2% in March 2021. Passive funds increased their share from 9.8% to 18.6% over the same period. Together, the two categories accounted for 62% of industry AUM in March 2026, compared with 41% 5 years earlier. 

• Debt funds moved in the opposite direction. Their share of industry AUM declined from 42.3% in March 2021 to 22.4% in March 2026. The Factbook attributes the decline partly to changes in taxation, particularly the withdrawal of indexation benefits for debt funds. 

• Hybrid funds, meanwhile, increased their share from 10.9% to 14% during the same period. The category has therefore gained ground without matching the scale of the shift seen in equity and passive funds.

• The latest one-year movement also provides an important distinction. Equity's share declined from 44.8% in March 2025 to 43.4% in March 2026, while passive funds increased from 17.1% to 18.6%. 

READ THIS ALSO: Mutual Funds Gain Ground in India as Savings and Women Investors Rise

Flexi-cap, mid-cap and small-cap funds lead equity inflows

Looking beyond the broad equity category reveals where investors are putting their money.

• Equity funds remained the principal driver of industry flows, with net inflows rising from ₹1.6 lakh Cr in FY22 to ₹4.2 lakh Cr in FY25, before moderating to ₹3.5 lakh Cr in FY26. Despite the decline from the previous fiscal year, the FY26 figure remained above the level recorded in FY22. 

• In FY26, flexi-cap funds accounted for around 25.7% of equity inflows, followed by small-cap funds at 15% and mid-cap funds at 14.8%. Large-cap funds accounted for around 7% of equity inflows. 

• 5-year data also shows that several equity categories have consistently attracted funds. According to the Factbook's category-wise data, flexi-cap funds received ₹0.9 lakh Cr of net inflows in FY26, while mid-cap and small-cap funds each received ₹0.5 lakh Cr. Large & mid-cap funds attracted ₹0.4 lakh Cr and large-cap funds ₹0.2 lakh Cr. 

• Sectoral and thematic funds, which had attracted ₹1.5 lakh Cr in FY25, saw inflows moderate sharply to ₹0.3 lakh Cr in FY26. 

Passive investing is no longer a small part of the market

Passive funds have become the second major component of the industry's changing asset mix.

• Passive funds increased their share of industry AUM from 9.8% in March 2021 to 18.6% in March 2026. Their net inflows also increased from ₹1.3 lakh Cr in FY22 to ₹2.1 lakh Cr in FY26.

• The composition of passive flows is important. In FY26, Other ETFs attracted ₹1.1 lakh Cr, while gold ETFs received ₹0.7 lakh Cr and index funds received ₹0.3 lakh Cr. Total passive net inflows stood at ₹2.1 lakh Cr. 

Hybrid funds are gaining importance as allocation products

Hybrid funds occupy a middle position between equity and debt in the industry's asset allocation.

Their share of industry AUM increased from 10.9% in March 2021 to 14% in March 2026.

Net flows also remained positive in FY26, with hybrid schemes receiving ₹1.5 lakh Cr, compared with ₹1.2 lakh Cr in FY25 and ₹1.4 lakh Cr in FY24. 

The individual categories show where this fund went. Multi Asset Allocation Funds received ₹0.7 lakh Cr in FY26, while Dynamic Asset Allocation/Balanced Advantage Funds attracted ₹0.2 lakh Cr. Arbitrage funds also received ₹0.5 lakh Cr.

READ THIS: SIF AUM Jumps 5X to ₹10,620 Cr in Six Months: What’s Driving Growth?

Investors are holding funds for longer

What investors are buying is only one part of the story. How long they remain invested has also changed.

Between March 2021 and March 2026, the share of industry AUM held for less than one year fell from 51.6% to 40.7%. At the same time, the share held for one to five years increased from 40.7% to 46.8%, while holdings of more than five years rose from 7.7% to 19.2%.

Conclusion

The Factbook's data shows a clear preference for equity, passive and hybrid funds, while debt has lost share in the industry's asset mix. FY26 equity inflows were led by flexi-cap, small-cap and mid-cap funds, while passive flows reached ₹2.1 lakh Cr.

At the same time, longer holding periods suggest investors are increasingly staying invested rather than frequently moving between products.