The SPIVA India Scorecard, published by S&P Dow Jones Indices, is the most rigorous public tracking of how actively managed Indian funds perform against their benchmark indices over time. The year-end 2023 data found that 73% of Indian large-cap active funds underperformed their benchmark over a 10-year period, and the figure was even higher, 82%, for mid-cap and small-cap funds over the same horizon. These numbers are after fees.
SPIVA India Year-End 2023 — active fund underperformance rate, 10-year horizon
Why active funds underperform: the underlying arithmetic
Before fees, the market is close to a zero-sum game — for every investor who beats the average, another must underperform it by a corresponding amount. After fees are subtracted, the average active investor must underperform the index by roughly the amount of fees charged.
| Fund type | Annual fee | Value after 20 years |
|---|---|---|
| Index fund | 0.1% | ₹95.2 lakh |
| Active fund | 2.0% | ₹64.9 lakh |
| Difference | — | ₹30.3 lakh lost to fees |
₹10 lakh invested at 12% gross return for 20 years — fee impact
Where the data is more favorable to active management
The picture is not uniformly negative for active funds across every category. ELSS funds, the tax-saving category under Section 80C, have historically shown meaningfully better relative performance than large-cap funds in several SPIVA reporting periods. Mid-cap and small-cap segments are also generally considered less efficiently priced than large-cap stocks, since they receive far less analyst coverage — though the SPIVA data shows this theoretical opportunity does not consistently translate into actual outperformance once fees are accounted for.
Why the underperformance rate tends to worsen over longer horizons
A notable pattern in the SPIVA data is that underperformance rates for large-cap funds tend to be lower over very short periods, sometimes even showing a majority of funds beating the benchmark in a single strong year, but rise substantially over 3, 5, and 10-year horizons. This reflects the fact that beating a benchmark consistently, year after year, is a much harder bar to clear than beating it in any single favorable year.
A practical portfolio approach
A core-and-satellite structure
Core (≈70%): Index funds
- •Nifty 50 or Nifty Next 50
- •Minimal cost, full transparency
- •Data strongly favours this for large-cap exposure
Satellite (≈30%): Selected active funds
- •Focused on ELSS or mid/small-cap categories
- •Where the case for active management is comparatively stronger
- •Choose funds with a long, consistent track record
What this means in practice for most investors
- For large-cap equity exposure specifically, the data strongly favors low-cost index funds over actively managed alternatives.
- For ELSS tax-saving investments, actively managed funds have shown a comparatively stronger relative track record.
- Always compare the expense ratio explicitly before choosing between a direct and regular plan of the same fund.
- Reassess any active fund holding against its benchmark periodically, since past outperformance is not a reliable predictor of continued future outperformance.
Beating the market once is luck. Beating it consistently, after fees, for a decade, is what the data shows most fund managers cannot do.