Opinion
India Is a Stock Picker’s Market. That Does Not Make Fund Selection Easy.
India offers abundant opportunities for active managers. The evidence still says that most investors should treat a broad, low-cost index as the default and make every active fund prove its place.
· 3 min read
The most persuasive argument for active funds in India is also the easiest to misuse: India is less efficient than the United States, so skilled managers should have more opportunities to outperform.
The first half of that sentence may be reasonable. The second does not automatically follow.
Opportunity is not outcome. A market can contain mispriced securities while the average fund still loses part of its advantage to fees, trading, capacity, cash holdings and incorrect decisions.
What the Indian evidence says
S&P Dow Jones Indices’ SPIVA India Year-End 2025 scorecard compared active Indian funds with category benchmarks.
Over the ten years ending December 2025:
| Active-fund category | Funds that underperformed |
|---|---|
| Indian large-cap equity | 76.3% |
| ELSS | 82.9% |
| Indian mid-/small-cap equity | 79.0% |
| Government bond | 75.6% |
| Composite bond | 96.5% |
This does not show that active management never works. In 2025, Indian mid-/small-cap managers had a strong relative year: only 12.1% underperformed their benchmark. The long-term figure nevertheless reached 79.0%.
That contrast is the point. A favourable year for stock selection does not tell us which fund will persist for the investor’s full horizon.
The index is not “settling for average”
An index investor accepts the market return before costs and a small implementation difference. An active investor accepts the market return, then adds a manager-selection decision.
The active fund can win. It can also change manager, drift away from its stated style, become too large for its earlier approach or spend years on the wrong side of a market cycle.
The choice is therefore not between intelligence and laziness. It is between the uncertainty of the market and the uncertainty of the market plus the manager.
For the core of a long-term portfolio, we prefer to be paid primarily for bearing market risk—not for repeatedly predicting which professional will beat other professionals.
The Nifty record is not painless
NSE Indices’ Nifty 50 white paper shows why “passive” should never be confused with “safe.”
The Nifty 50 Total Return Index fell 51.27% in 2008 and 23.81% in 2011. It also rose 77.59% in 2009. An investor who bought the index still needed the temperament, liquidity and horizon to survive enormous variation.
Indexing removes manager-selection risk. It does not remove equity risk. That is why our case for passive investing sits inside a balanced portfolio rather than an instruction to put every rupee into an index fund.
When active can earn a place
An active fund may deserve consideration when:
- the mandate is difficult to represent with a sensible low-cost index;
- the manager has a repeatable process that has survived personnel and market cycles;
- portfolio capacity is controlled;
- the benchmark genuinely matches what the fund owns;
- costs are reasonable relative to the claimed edge; and
- the investor has written monitoring and replacement rules.
“It beat the index over three years” is not enough. Three years may describe one factor cycle, one market-cap regime or one manager who is no longer present.
Our contrarian default
India may offer active managers more raw material than a highly researched developed market. That makes exceptional performance possible. It does not make exceptional managers easy to identify in advance.
We therefore use broad passive funds as the equity core and place the burden of proof on active funds. The active allocation must solve a named problem. It does not enter merely because a ranking table has found a recent winner.
This is not anti-manager. It is pro-base-rate.
Is every active fund in your portfolio doing something a simpler index cannot? Book a portfolio review. We will map each holding to its benchmark, cost, overlap and intended role before deciding whether it has earned its place.
Sources
- S&P Dow Jones Indices, SPIVA India Year-End 2025. S&P DJI has a commercial interest in indices; the scorecard is useful because it reports category underperformance and survivorship rather than only surviving winners.
- NSE Indices, Nifty 50 White Paper 2025, total-return calendar-year history.
General information and education, not personalised investment advice or a recommendation regarding any scheme. Historical results do not guarantee future outcomes. Mutual Fund investments are subject to market risks; read all scheme-related documents carefully. North Pole South Pole Financial Services is an AMFI-registered Mutual Fund Distributor (ARN-286779), not a SEBI-registered investment adviser.
