Now Reading: Active funds beat passive ones only in some categories, study shows
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Active funds beat passive ones only in some categories, study shows
Active funds beat passive ones only in some categories, study shows
Active mutual funds beat their benchmarks in only 30-52% of rolling periods for large-cap, mid-cap and large & mid-cap categories, according to a study by Apurv Gupta of Otto Money. The analysis…
The Story in Brief
Active mutual funds beat their benchmarks in only 30-52% of rolling periods for large-cap, mid-cap and large & mid-cap categories, according to a study by Apurv Gupta of Otto Money. The analysis covered 44,500 fund-window observations from January 2013 across seven equity categories. Active funds outperformed in 57-65% of periods for flexi-cap, focused and value funds. Small-cap funds were the standout, beating benchmarks in 90% of seven-year windows. The median advantage over benchmarks was less than 1% annually for categories where active funds did better.
The study found a wide gap between top and bottom performers within the same category. Over seven years, the best flexi-cap fund beat its benchmark by 5.8%, while the worst underperformed by 4.3%. Regular plans, which carry commissions, sharply reduced active funds' chances of beating benchmarks compared with direct plans. For large-cap funds, active direct plans beat benchmarks in 30% of periods versus 11% for regular plans.
The Indian Opinion
The financial press loves the active-versus-passive debate because it lets them give two contradictory opinions in the same article. A reader would be forgiven for throwing up their hands. But the data is actually quite precise: for the large- and mid-cap core of your portfolio, index funds win. For small-caps, an actively managed direct plan does better. The real question is whether the average investor picking a flexi-cap fund is willing to accept a 10-percentage-point gap between the best and worst performer. Until SEBI mandates clear, category-wise success rates on every fund fact sheet, the noise will continue.
Source: livemint.com
This story was synthesised by AI from the source linked above.
