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Active vs. Passive Funds: Who Won Over 10 Years?
25 Jun
Summary
- Active fund delivered higher returns over a decade.
- Index fund has a lower expense ratio of 0.18%.
- Active fund's beta is slightly lower than index fund.
In a head-to-head comparison, actively managed funds have demonstrated superior performance over passive index funds over a ten-year period. The ICICI Prudential Large Cap Fund, an actively managed large-cap fund, outperformed the UTI Nifty 50 Index Fund, India's largest Nifty 50 index fund, over the long term.
A decade ago, an investment of ₹1 lakh in the ICICI Prudential Large Cap Fund would have grown to approximately ₹3.96 lakh. In contrast, the same investment in the UTI Nifty 50 Index Fund would have yielded roughly ₹3.26 lakh. This performance gap suggests that active stock selection can generate significant alpha, even after accounting for higher fees.
The UTI Nifty 50 Index Fund boasts a significantly lower expense ratio of 0.18%, compared to the ICICI Prudential Large Cap Fund's 0.72%. However, the active fund's ability to strategically pick stocks and manage its portfolio has led to better overall returns. Additionally, the active fund exhibits a slightly lower beta (0.92) than the index fund (0.95), indicating marginally less sensitivity to market fluctuations.
