Indian actively-managed equity funds continue to find consistent benchmark outperformance difficult, particularly in large- and mid-cap categories. Yet, compared with active funds in most major markets, their record remains relatively favourable.

A bl.portfolio analysis of ACEMF data shows that 71 per cent of large-cap funds and 76 per cent of mid-cap funds underperformed their benchmarks over the five years ended July 2026. The rate was lower at 59 per cent for flexi-cap funds. Small-cap funds fared best, with 43 per cent trailing their benchmarks.

The numbers point to a mixed record. Most active funds still lag their indices, but outcomes vary across categories and market phases. India also compares better with the global median across one-, three-, five- and ten-year periods, according to S&P Global’s SPIVA scorecards.

Uneven show

The ACEMF analysis tracks five-year returns at each year-end from 2020 to 2025 and at July 2026. Large-cap funds have consistently found it hardest to beat their benchmarks. The proportion of underperforming schemes stood at 87 per cent in both 2020 and 2021, peaked at 96 per cent in 2022, eased to 60 per cent in 2024, and rose again to 70 per cent in 2025 and 71 per cent by July 2026.

Mid-cap funds showed an initial improvement, with the underperformance rate falling from 85 per cent in 2020 to 57 per cent in 2022. However, it climbed thereafter and remained above 73 per cent during 2023-26.

Flexi-cap funds delivered relatively steadier performance, though a majority lagged their benchmarks in every period. The underperformance rate eased to 59 per cent by July 2026 from 67 per cent in 2025.

Small-cap funds were the exception. Just 14-23 per cent of schemes underperformed during 2020-22, suggesting greater scope for active stock selection. The figure rose to 53 per cent in 2024 and 68 per cent in 2025 before easing to 43 per cent by July 2026.

The trend highlights how market conditions shape active fund performance. Broad-based rallies tend to make benchmarks harder to beat, while more differentiated markets create greater opportunities for stock pickers.

Costs matter

Active funds also start with a higher cost hurdle. As of June 2026, active large-cap funds charged average base expense ratios of 1.73 per cent under regular plans and 0.73 per cent under direct plans.

Index funds tracking the Nifty 50 and Nifty 100 charged averages of 0.46 per cent and 0.18 per cent, respectively. Nifty 50 exchange-traded funds averaged just 0.06 per cent.

The gap compounds over longer holding periods. It matters particularly in large-caps, where companies are widely researched and pricing inefficiencies are harder to exploit consistently.

Benchmark concentration can also weigh on active fund performance. When a handful of heavyweight stocks drive an index rally, diversified active funds often lag because they typically hold lower allocations to those stocks. Cash holdings, portfolio turnover and investment constraints can further widen the performance gap.

Global scorecard

India compares favourably with global peers on active fund performance. The proportion of Indian active funds underperforming their benchmarks stands at 75 per cent over one year, 74.2 per cent over three years, 84.4 per cent over five years and 76.3 per cent over ten years.

All four figures are below the corresponding cross-country medians of 81.6 per cent, 91.3 per cent, 89.7 per cent and 93 per cent.

India’s three-year rate is lower than that of every market in the comparison except China. Its ten-year rate is the lowest among markets for which data are available.

Developed markets generally report higher underperformance. The rate ranges from about 80 per cent to 91 per cent in the US, 88-93 per cent in the UK and 93-99 per cent in Canada. China performs better than India over one-, three- and five-year periods, while Japan and Sweden fare better over some horizons.

The comparison is indicative, as SPIVA scorecards across countries may differ in terms of fund categories and benchmark indices.

Investor takeaway

The data strengthen the case for low-cost passive investing in the large-cap segment, where beating the benchmark has proved particularly challenging. Active management may continue to hold an edge in the small-cap, mid-cap and flexi-cap categories, where a broader investment universe offers greater scope for stock selection.

However, category-level potential does not guarantee scheme-level success. Investors should evaluate costs, investment process and performance across full market cycles before making a choice.

While Indian active funds have not consistently outperformed their benchmarks, they have fared better than many of their global peers, underperforming less frequently than active funds in several other markets.

Published on August 1, 2026