2 weeks ago
Active mutual funds outperform passive peers across most categories: data
Some mutual funds are like having a coach who picks which stocks to buy, while others just copy a big list of stocks called an index.
The coach funds, called active funds, charge more money for their work.
Copycat funds, called passive funds, cost less.
A new report looked at which type did better with people's money.
It found that the coach funds usually made more money than the copycat funds.
The coach funds did especially well with small companies.
Sometimes the copycat funds did better, like with medium-sized company funds over five years.
One expert said it is smart to check each fund on its own before choosing.
So paying more can be worth it if the fund earns enough extra money to cover the cost.
Active equity mutual funds outperformed passive funds across most market-cap categories and time periods, according to ACE MF data.
Active small-cap funds showed the strongest edge, returning 14.66% versus 9.33% for passive funds over one year.
Over five years, active large-cap funds beat passive by 1.04% and small-caps by 1.64%, while passive mid-cap funds outperformed by 0.96%.
Active diversified equity funds charge an average expense ratio of about 2.16%, roughly 1% to 1.5% more per year than passive funds.
Since 2018, active small-cap funds have outperformed the Nifty Smallcap 250 index in 8 of 9 years, including down years like 2022 and 2025.
Expert Manish Srivastava of Anand Rathi Wealth advised investors to compare individual funds rather than only category-level averages.
- Who
- Mutual fund investors in India choosing between active and passive funds, and expert Manish Srivastava of Anand Rathi Wealth.
- What
- A performance comparison of active versus passive mutual funds across large-cap, mid-cap, and small-cap categories.
- Where
- India, based on returns of Indian mutual fund categories and Nifty indices.
- When
- The analysis covers six-month, one-year, three-year, and five-year return periods, as well as calendar-year returns from 2016 to 2026.
- Why
- To determine whether the higher expense ratios of active funds are justified by sufficiently higher returns after costs.
Active Management Proponents
Passive Investing Advocates
Performance after costs
Active Management Proponents
Active funds generated enough extra returns to cover their higher fees, outperforming passive funds across most categories and periods, with consistent small-cap alpha even in downturns.
Passive Investing Advocates
Passive funds cost 1% to 1.5% less per year and had stronger years when broad index performance was strong; in mid caps, passive funds beat active funds over five years, and 12 of 27 active mid-cap funds failed to beat the index.
How investors should choose
Active Management Proponents
Investors should build portfolios of active funds that consistently deliver better returns after costs rather than picking funds purely on lowest expense ratio.
Passive Investing Advocates
Investors should not generalize from category-level results; fund-wise performance matters because some active funds underperform their passive index at any given time.
Key facts
- Data source
- ACE MF
- Active vs passive 5-year edge (large cap)
- Active outperformed by 1.04%
- Active vs passive 5-year edge (small cap)
- Active outperformed by 1.64%
- Passive vs active 5-year edge (mid cap)
- Passive outperformed by 0.96%
- Active funds average expense ratio
- Around 2.16%
- Passive funds expense ratio range
- 0.60% to 1.05%
- Active small-cap outperformance vs Nifty Smallcap 250 since 2018
- 8 of 9 years
- Expert quoted
- Manish Srivastava, Executive Director, Anand Rathi Wealth
Quotes
Manish Srivastava
Executive Director, Anand Rathi Wealth
“If we look at calendar-year returns from 2016 to 2026, passive funds have had stronger years when broad index performance was strong, while active funds have led in most of the other years.”
financialexpress.com
Sources
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