It’s getting increasingly harder for active funds to outperform their benchmarks, says Nithin Kamath

Brokerage firm Zerodha’s CEO Nithin Kamath today shared insights on the debate between investing in active or passive funds. Kamath, speaking on X, said “It’s getting increasingly harder for active funds to outperform their benchmarks.”

“It’s a no-brainer to opt for low-cost index funds as the core of your portfolio. You can complement that with other funds, but the core should be passive funds,” Kamath said on X (formerly Twitter).

https://x.com/Nithin0dha/status/1773605413025427731?s=20

The latest S&P SPIVA data came out, and it once again shows the difficulty of most active funds in beating their benchmarks over long periods of time.

According to the data, 51.6% of Indian Equity Large-Cap funds failed to outperform the S&P BSE 100 over a one-year period. Similarly, over 3-year, 5-year, and 10-year periods, 87.5%, 85.7%, and 62.1% of active funds respectively were unable to beat the same benchmark.

Additionally, over one year, 73.58% of Indian Equity Mid/Small-Cap funds (active funds) were unable to outperform the S&P BSE 400 Mid/SmallCap Index. Furthermore, during 3-year, 5-year, and 10-year periods, 60%, 58.1%, and 75.4% of active funds respectively failed to beat the same benchmark.Meanwhile, 81.48% of Indian Government Bond (active funds) were unable to outperform the S&P BSE India Government Index over a one-year period. Similarly, during 3-year, 5-year, and 10-year periods, 75%, 64%, and 90% of active funds respectively failed to beat the same benchmark.30% of Indian ELSS funds failed to outperform the S&P BSE 200 Index over a one-year period. Similarly, during 3-year, 5-year, and 10-year periods, 53.6%, 70.7%, and 67.5% of active funds respectively were unable to beat the same benchmark, the data showed.

On March 28, Zerodha Mutual Fund announced that it had crossed Rs 1,000 crore in assets under management (AUM) within just 40 days of launch.

“Heartening to see investor trust continue to compound at Zerodha Mutual Fund (a smallcase-Zerodha JV) with assets doubling to Rs 1000+ cr in just 40 days. It’s a reflection of the growing appetite for index-based investment products & we are grateful for all the feedback & ideas,” Vasanth Kamath, Associate Director at the fund house, tweeted.

The fund house manages four mutual fund schemes which include only passive funds. Zerodha ELSS Tax Saver Nifty LargeMidcap 250 Index Fund, Zerodha Nifty LargeMidcap 250 Index Fund, Zerodha Nifty 1D Rate Liquid ETF, and Zerodha Gold ETF are the current offerings by the fund house.

Zerodha Mutual Fund is a joint venture between Zerodha and fintech platform smallcase that is offering only passive funds and with direct plans so that there are no transaction charges involved.

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