Over 52 per cent of all actively-managed mutual funds across market capitalisations managed to beat their indices during the last few months of correction.
Ninety per cent of small-cap funds, 70 per cent of large- and mid-cap funds and 67 per cent of multi-cap funds beat their respective benchmark indices between September 26, 2024, and March 4, 2025, data showed. Sixty two per cent of flexi-cap funds beat their benchmarks during this period. The outperformance was lower for large-caps and mid-cap funds at 56 per cent and 52 per cent, respectively.
“Active funds outshone passive funds due to their ability to adjust portfolios based on market conditions. While passive funds indiscriminately hold all index stocks, active managers focus on quality stocks, rebalance portfolios, and manage risks effectively. This has helped them limit losses and recover faster during market corrections,” said Deepak Agrawal, CIO Debt and Head – Products, Kotak Mahindra AMC.
The benchmark indices peaked on September 26 before slipping over 15 per cent in the next five months on selloff from overseas investors.
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Active funds have historically done well vis-a-vis passives during market falls, according to Kirtan Shah, Managing Director – Private Wealth, Credence Family Office. “Markets are driven by liquidity and momentum during periods of sustained uptick. This favours passive funds. During downturns, having the right kind of stocks at the right valuation in the portfolio can cushion the blow and help the fund outperform the index,” he said.
Active small-cap funds have especially done better during corrections because of their ability to cherry-pick stocks from a large universe.
“A typical small-cap index would have 250 stocks. The small-cap universe itself, however, would comprise 500 or more stocks. Fund managers can pick 50-60 names from those 500 after doing the necessary filtering or quality analysis. During a fall, a select basket of small-cap stocks have a much better chance of beating an index of 250 stocks,” said Shah.
Last week, Indian equities registered one of the best weekly gains in four years, climbing 4.3 per cent. On Wednesday, indices declined 0.8 per cent.
“The current environment favours active management. With markets experiencing fluctuations, the ability to actively adjust exposure and manage risks gives these funds an advantage. Passive strategies, which simply follow the index, lack this flexibility, making active funds a more attractive choice in volatile conditions,” said Agrawal.
