New Delhi In a powerful display of evolving investment behavior, a growing number of Gen Z and Millennial investors are increasingly favoring index funds over exchange-traded funds (ETFs), marking a significant generational shift in long-term financial planning.
This trend reflects a change in mindset among younger investors—one that prioritizes passive income, simplicity, and reliable returns over speculative trading. Data from leading brokerage platforms and mutual fund distributors indicates that individuals under the age of 35 are driving the majority of new investments into index funds in 2024–2025.
A Move Towards Stability and Simplicity
Unlike their Gen X or Baby Boomer counterparts, younger investors today are not looking for the next “hot” stock or fast gains through aggressive day trading. Instead, they are choosing long-term, diversified instruments like index funds, which track market indices such as the Nifty 50 or Sensex.
“Millennials and Gen Z are digital natives who are better informed than any previous generation,” says Meena Shah, Head of Investment Research at FutureWealth Advisors. “They’ve witnessed the volatility of crypto, the uncertainty of startups, and even the sharp fluctuations in ETFs during high market stress. That’s why they’re placing their bets on index funds.”
Index funds offer exposure to a wide array of top-performing stocks in a single fund. Unlike ETFs that are traded like stocks and can fluctuate wildly during the day, index funds are valued once at the end of each trading day—providing both psychological comfort and a long-term view.
Better Returns with Lower Costs
Another driving factor is the cost efficiency of index funds. With no active fund manager taking commissions and fewer administrative charges, index funds often come with low expense ratios—making them ideal for young investors who may be starting their financial journeys with smaller portfolios.
According to a recent SEBI-registered report, index funds have consistently outperformed most actively managed funds over the last 5 years, particularly when adjusted for fees. Millennials and Gen Z, who often prioritize performance transparency and cost-efficiency, are recognizing these advantages.
Rohan Malhotra, a 29-year-old digital marketer in Mumbai, says, “I started with ETFs thinking they were modern and liquid, but eventually moved to index funds for their performance and lower stress. I don’t want to check prices ten times a day. I want compounding to work quietly in the background.”
Liquidity and Accessibility
Though ETFs are often praised for their intra-day liquidity, many young investors are realizing that index funds provide sufficient liquidity without the pressure of market timing. Mutual fund platforms, robo-advisors, and SIP (Systematic Investment Plan) features have made it incredibly easy to invest, redeem, or automate index fund contributions without needing to track daily fluctuations.
Moreover, index funds allow fractional ownership. While ETFs require buying at least one whole unit at a market price, index funds allow investments as low as ₹100 via SIP, making them more accessible to college students, early professionals, and gig workers.
Technology and Financial Literacy Driving the Shift
The digital ecosystem has played a crucial role in this shift. Financial influencers on platforms like YouTube, Instagram, and LinkedIn are actively promoting index funds as part of minimalist and FIRE (Financial Independence, Retire Early) investment strategies.
Apps like Zerodha Coin, Groww, and Kuvera have made onboarding frictionless, and they often highlight index funds in recommended lists. Fintech companies are bundling index funds into curated investment baskets, further increasing their popularity among tech-savvy investors.
“Thanks to social media and user-friendly investment apps, young Indians today know about terms like ‘expense ratio,’ ‘tracking error,’ and ‘asset allocation,’ which were once known only to finance professionals,” says Kunal Verma, FinTech analyst at WealthStack India.
Older Investors Still Favor ETFs and Active Funds
In contrast, older investors continue to lean toward ETFs and actively managed mutual funds, often due to habit or advice from traditional financial advisors. ETFs also remain attractive for high-net-worth individuals seeking specific sectoral exposure or hedging strategies.
However, this divergence points to a broader evolution of investor psychology. Gen Z and Millennials are not merely avoiding risk—they are managing it with intent, embracing the power of passive investing and long-term wealth creation.
What This Means for the Industry
This surge in index fund adoption is a call to action for asset management companies and advisors. Offering more targeted, low-cost index funds and building educational resources around them is now imperative.
“We’re seeing over 60% of new mutual fund folios from the 20-35 age bracket going into index funds,” reports Neha Tiwari, product strategist at FinVerse AMC. “This is a once-in-a-generation behavioral transformation—and the industry must align with it.”
Conclusion:
The preference of Gen Z and Millennials for index funds reflects more than just a product choice—it reflects a new ethos of informed, patient, and goal-based investing. As this generation matures and their incomes rise, their disciplined approach could redefine how India builds wealth.
In an era where everyone is seeking quick wins, today’s youth is proving that the slow and steady strategy of index funds might just win the race.
