Active mutual funds have an edge over passive funds in the long run

Active mutual funds have an edge over passive funds in the long run

In developed markets like the US, 85% of the active managers underperformed the market in 2021. In fact, not only in 2021, but a Morningstar report suggests that over a 10-year period, only 25% of all active funds beat their passive counterparts in the US. In contrast, in India, on average the active manager has outperformed the benchmark.







Prateek Pant









May 12, 2022 / 10:30 AM IST





An active fund manager is often judged on the alpha or performance of the fund he manages compared to a suitable benchmark, such as the BSE 500 (if it is a flexicap fund) or BSE 100 or an equivalent index (if it is a large-cap fund).

The goal of an active fund manager is to beat the market—to get better returns by choosing investments he or she believes to be top-performing selections. On the other hand, passive funds seek to replicate the performance of their benchmarks instead of outperforming them. For instance, the manager of an index fund that tracks the performance of the BSE 500 typically buys a portfolio that includes all of the stocks in that index in the same proportions as