Active vs Passive in India
In this chapter: SPIVA India scoreboards · Where index funds dominate, where active still earns its fee
SPIVA (S&P Indices vs Active) India publishes scorecards showing what % of active funds beat their benchmark over 1-, 3-, 5-, 10-year windows. Recent scorecards (2023-24): in large-cap, ~70-80% of active funds underperform NIFTY 50 over 10 years. In mid-cap and small-cap, the underperformance is lower (50-60%). In sectoral funds, the picture is mixed.
Active wins systematically only in inefficient market segments — small-cap, contrarian/value, and specific themes. Large-cap is highly efficient: NIFTY 50 has 50 names well-covered by analysts; alpha is hard. Mid-cap is moderately efficient; small-cap is the least efficient. Active fees of 1.5-2% need to be earned via 2%+ alpha, which is unusual. Index funds (large-cap) with TER under 0.5% are increasingly the right default for retail. Active mid/small/sector for tactical or specialist exposure.
A practitioner insight: not all index funds are equal. Total expense ratio matters; tracking error matters; trading costs matter. A 0.5% TER index fund with 0.3% tracking error vs a 0.1% TER index fund with 0.2% tracking error — the second is meaningfully better over 30 years. Investors should screen index funds on TER, tracking error, and AUM (very small index funds can have liquidity risks). Smart-beta and factor index funds are a middle ground — index-like cost with some factor tilt.