Active vs Passive Funds in India Is SPIVA India Giving You the Full Picture
“Most active funds underperform the index.”
You’ve probably heard this statement countless times.
It’s repeated in blogs, presentations, and client meetings as if it’s an unquestionable truth.
But pause for a moment and ask yourself:
Underperform which index? And is that comparison even fair?
Because the real debate is not just active vs passive.
It’s whether the data used to support that debate is accurate, relevant, and comparable.
The SPIVA (S&P Indices Versus Active) India Scorecard is one of the most widely cited reports in the investment world.
It tracks:
And measures:
What percentage of these funds fail to beat a benchmark index over time?
One important strength:
✔️ It adjusts for survivorship bias (includes closed and merged funds)
So yes, it’s methodologically sound in some areas.
But here’s the bigger question:
Is it comparing apples to apples?
The appeal is simple.
SPIVA provides a clean headline:
Easy to understand. Easy to quote. Easy to believe.
But investing isn’t that simple.
Because behind every percentage lies:
And if even one of these is misaligned, the conclusion can be misleading.
Before evaluating any performance, we need to understand what funds are actually allowed to do.
SEBI defines:
And mandates strict allocation rules.
So logically, shouldn’t performance be measured against benchmarks that reflect these exact universes?
That’s where things start to break down.
In 2024, a structural change happened.
S&P exited its joint venture with BSE.
As a result:
👉 SPIVA stopped using BSE indices
👉 It switched to its own S&P India index family
This wasn’t purely a methodological upgrade—it was a business-driven shift.
And that shift changed the nature of comparisons.
Let’s simplify this.
Earlier (Pre-2024):
Now (Post-2024):
But here’s the issue:
A large-cap fund manager:
The benchmark:
So the benchmark has access to higher-growth segments the fund cannot fully invest in.
Is that a fair comparison?
🔴 i. Large-Cap Vs Large + Mid-Cap Benchmark
This is the biggest distortion.
Mid-cap stocks:
By including them in the benchmark:
The bar is artificially raised
Result:
Active large-cap funds appear to underperform more than they actually do.
🔴 ii. Mid + Small Funds Vs Pure Small-Cap Benchmark
Mid-cap funds are:
But these are completely different segments.
👉 Different risk
👉 Different volatility
👉 Different return cycles
This mismatch again distorts results.
🔴 iii. Broken 10-Year Comparisons
Here’s something most people miss:
Then combined into a single 10-year number.
👉 That’s not a continuous comparison
👉 It’s a stitched dataset
Which reduces reliability of long-term conclusions.
🔴 iv. Benchmarks You Can’t Invest In
This is the most practical issue.
Ask yourself:
Can you invest in the S&P India LargeMidCap Index?
No.
But you can invest in:
So if the benchmark isn’t investable:
How useful is the comparison?
At the heart of the passive investing argument lies a simple idea:
“If active funds underperform the index, just invest in the index.”
Clean. Logical. Efficient.
But here’s the uncomfortable question:
What if the index itself is not something you can actually invest in?
Because that’s exactly where the problem begins.
An index is only useful to you as an investor if:
If none of this is true, then the comparison becomes purely academic.
In other words:
You’re being told active funds underperform something you cannot even buy.
That creates a disconnect between theory and execution.
And in investing, execution is everything.
Think about it this way:
If a benchmark shows 12% returns, but the closest available fund tracking it delivers 10.5% after costs and tracking error, then your real benchmark is not 12%—it’s 10.5%.
So when evaluating active vs passive:
The real comparison should be
Active fund vs investable passive alternative—not a theoretical index
Because ultimately, your portfolio doesn’t live in reports—it lives in real markets.
If we shift from theory to practicality, the answer becomes clearer.
A good benchmark should do three things:
When you apply these filters, a more realistic framework emerges:
| Category | Better Benchmark |
|---|---|
| Large-cap | Nifty 100 TRI |
| Mid-cap | Nifty Midcap 150 TRI |
| Small-cap | Nifty Smallcap 250 TRI |
| ELSS | Nifty 500 TRI |
Why does this matter so much?
Because these indices:
This shifts the conversation from:
“What does the data say?”
To:
“What can I actually do with this data?”
And that’s a far more useful question.
Let’s address this head-on.
No—this does not automatically mean active funds are superior.
There are still very real challenges:
But here’s where nuance becomes important:
If the benchmark itself is inflated or mismatched, then the extent of underperformance can be exaggerated
And that changes the narrative.
Instead of saying:
“Most active funds fail badly”
A more accurate statement might be:
“Many active funds struggle to outperform—but the gap may not be as wide as reported”
That distinction matters—especially when making long-term allocation decisions.
Because investing is not about proving a point.
It’s about optimizing outcomes.
Now let’s zoom out.
India is not a static, fully efficient market like some developed economies.
It is:
In such an environment, inefficiencies naturally exist.
And where inefficiencies exist:
Active management has room to add value
For example:
Passive funds, by design:
So while passive investing offers:
Active investing offers:
The trade-off becomes philosophical:
Do you prefer guaranteed market returns—or the possibility of beating them?
There is no universal answer—only what fits your strategy.
Instead of relying solely on headline reports, a more robust approach would involve:
✔️ Looking at rolling returns (3–5 years)
This avoids the bias of picking convenient start and end dates.
✔️ Comparing against correct benchmarks
A large-cap fund should be judged against a large-cap index—not a blended one.
✔️ Factoring in costs explicitly
Returns after expenses are what matter—not gross performance.
✔️ Evaluating consistency
One year of outperformance is noise.
Repeated outperformance across cycles is signal.
✔️ Separating categories clearly
Mid-cap and small-cap behave very differently.
Combining them hides important insights.
When you approach fund evaluation this way, something interesting happens:
The conversation shifts from “active vs passive”
to
“which strategy works best in which segment?”
And that’s a far more sophisticated way to invest.
The SPIVA India Scorecard remains a valuable reference—but it should not be treated as the final word.
Especially post-2024, where:
So the next time you hear:
“80% of active funds underperform”
Pause and ask:
Because better questions lead to better investment decisions.
And while passive investing continues to be a strong foundation, a thoughtfully selected set of active funds—especially in a dynamic, growing economy like India—can still play a meaningful role in enhancing long-term returns.
If navigating this balance feels complex, working with a Certified Financial Planner (CFP) can help you build a strategy that is not just data-driven—but context-aware.
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