Active mutual funds keep beating passive peers, but edge narrows over time
Similarly in the first year, active small-cap funds generated returns of 3.6 per cent, while passive funds failed to deliver any gains registered a decline of 0.2 per cent
Active mutual funds have consistently outperformed passive funds across most categories, although the gap has been narrowing over time. Morningstar's data shows that half of active funds outperformed passive counterparts over one-year, three-year, and five-year periods. In large-cap category, active funds posted a 3.2% return compared to 5.6% for passive funds over a one-year period.
The trend was similar for three-year and five-year periods, with active funds delivering 10.7% and passive funds 8.5%, respectively. However, mid-cap funds stood out, with passive funds outperforming active funds by 0.6% over a one-year period. Despite this early advantage, the performance gap narrowed by 5 years, with active and passive funds delivering almost identical returns.
By the 10-year mark, returns in large-cap, mid-cap, and small-cap funds were almost identical, with active funds delivering 12.2%, 3.3% for mid-cap and 17.5% for small-cap funds. Morningstar's Kaustubh Belapurkar attributes this convergence to the strategy of active fund managers, who can generate alpha by identifying the best-performing stocks and avoiding the worst.
However, passive funds face fewer constraints, allowing them to launch new ideas without regulatory limitations. Investors are advised to choose based on their comfort with fund manager evaluation and stock-selection strategies.
Written by urgent.news from Hindu BusinessLine's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
