Majority of active funds lag behind indices

Passive funds that track benchmarks indices are not popular in India. Investors prefer schemes managed by fund managers (called active funds), due to the fund managers perceived ability to beat returns of the underlying benchmarks and generate the so-called alpha.

However, the latest SPIVA India (S&P Indices Versus Active Funds) scorecard reveals that over a one-year period ending December 2016, 66 per cent of large-cap equity funds, 64 per cent of ELSS (equity-linked savings scheme) funds and 71 per cent of mid & small-cap equity funds underperformed their respective benchmark indices. 

The underperformance reduced over longer time frames. Over a five-year period,