For large-cap exposure in India, index funds win: SPIVA India scorecards show roughly 75–80% of large-cap active funds losing to their benchmark over 5-year periods after fees. For mid- and small-cap exposure, a well-chosen active fund can still earn its fee. That one split settles most of the index-vs-active debate.
The mid- and small-cap edge has narrowed in recent SPIVA scorecards, so fund selection there matters more than it used to. Costs decide the rest: on a ₹10,000 monthly SIP over 25 years, a regular active plan ends up roughly ₹49 lakh behind a direct index fund.
Below: the full SPIVA numbers, why large-cap active funds struggle, where active still adds value, and the core-satellite structure most NYVO portfolios use.
The SPIVA India scorecard
S&P publishes SPIVA India twice a year – the definitive survey of how many active funds beat their benchmark after fees.
The latest 5-year picture (as of late 2025):
| Category | % of active funds beating the index |
|---|---|
| Large-cap equity | ~20–25% |
| Mid-cap equity | ~45–50% |
| Small-cap equity | ~55–60% |
| Flexi-cap / multi-cap | ~35–40% |
| ELSS | ~30% |
Read it carefully: 75–80% of large-cap active funds lose to their benchmark (S&P BSE 100) over 5 years. Mid- and small-cap active funds have historically done better, though that edge has narrowed in recent SPIVA scorecards (figures above are approximations).
This is the single most important insight in this article.
Why large-cap active funds struggle
Three reasons:
- Expense ratio. An active large-cap fund charges 1–1.5% per year. An index fund charges 0.1–0.3%. Over 20 years, that 1%+ drag compounds to a 20–25% lower corpus.
- Efficient market. Large caps are followed by hundreds of analysts. There's very little "mispricing" for a fund manager to exploit.
- Size/liquidity constraints. A ₹30,000 Cr active fund can't meaningfully deviate from the index without moving stock prices.
Conclusion: for Indian large-cap exposure, just buy a Nifty 50 or Nifty Next 50 index fund. The math is too punishing to beat consistently.
Why mid/small-cap active funds still win
- Less analyst coverage. A good fund manager can find mispriced stocks.
- Index composition lag. Mid-cap indices include companies that are already past peak growth; active managers can rotate out.
- Concentrated portfolios. A 30-stock mid-cap active fund can take meaningful positions a diversified index can't.
Conclusion: for mid and small-cap exposure, active funds still earn their fee on average. But: picking a good active fund matters a lot. Bottom-half active managers lose badly.
Expense ratio: the compounding tax
Let's make this visceral. ₹10,000 monthly SIP, 25 years, 12% gross return:
| Fund type | Expense ratio | Final corpus |
|---|---|---|
| Direct index fund | 0.2% | ₹1.83 Cr |
| Direct active fund | 1.0% | ₹1.59 Cr |
| Regular active fund (with distributor commission) | 2.0% | ₹1.34 Cr |
Choosing a regular active plan over a direct index fund costs you about ₹49 lakh. On a retirement timeframe: part expense ratio, part the distributor commission you gave to the broker, which is roughly ₹25 lakh of it on its own. The figures assume a 12% gross return throughout, which is a planning assumption rather than a forecast.
Always go direct. Never, ever, buy a regular plan mutual fund unless you have a specific reason (and you don't).
How to evaluate an active fund
If you're going active for mid/small-cap exposure, here's the checklist:
- 10+ year rolling returns vs benchmark (consistency beats one-shot outperformance).
- Fund manager tenure. Switch in the last 18 months? Skip it.
- Expense ratio. Under 1% for direct plan, ideally 0.5–0.8%.
- AUM size. For mid/small-cap, prefer ₹5,000–15,000 Cr. Much bigger and the strategy breaks.
- Style consistency. Check whether the fund's style (value, growth, quality) matches its claim.
- Downside capture. During 2020 crash and 2008 crash, how much did the fund fall vs index?
Skip:
- Star-manager-only funds (what happens when they leave?)
- Sector funds, thematic funds (unless you have a specific view)
- Anything "smallcap direct" launched in the last 2 years (no track record)
The core-satellite approach
Most NYVO portfolios use core-satellite:
Core (60–80% of equity allocation):
- Nifty 50 index fund
- Nifty Next 50 or Midcap 150 index fund (for broader large/mid)
Satellite (20–40% of equity allocation):
- 1–2 active mid or small-cap funds (if you want alpha exposure)
- International index fund (Nasdaq 100 or S&P 500, for currency/geography diversification)
- Maybe one thematic – manufacturing, consumption – if it aligns with a view
Core gets you market return cheaply. Satellite tries for alpha without dominating the portfolio.
What this means in practice
If your portfolio is 100% active funds today: Keep the good mid/small-caps. Replace the large-cap active funds with index funds. Usually saves 0.5–1% of annual drag.
If your portfolio is 100% index today: Consider adding 1–2 active mid-caps for the alpha potential. But only if you're willing to track performance and rotate if the manager disappoints.
If you're starting fresh: Default to core-satellite. 70% index, 30% active. Simple, cheap, diversified.
The real risk
The actual risk isn't "index vs active." It's:
- Not investing at all.
- Investing in regular plans and paying 1% to a broker forever.
- Chasing last year's winner fund.
- Selling after a crash.
Fix those four first. Index vs active is a rounding error in comparison.
Related NYVO guides
- SIP vs Lumpsum: the deployment decision once you've picked your fund mix.
- Goal-Based Planning 101: figure out the goal before picking the fund.
- Crorepati Calculator: reverse SIP math for any target corpus.
- Direct vs Regular Mutual Funds: The Fee Difference: where the distributor commission in the table above actually goes, and how to switch.
Run the numbers
Our MF returns calculator lets you model different expense ratios and see the long-term drag explicitly.
Need a second opinion on your current portfolio? Book a free portfolio review. A NYVO advisor will go through your folios and tell you which are earning their fees and which aren't.
