Active vs Passive – The Ugly Truth They Won’t Tell You.

 For years, you've been told.

"85% of active large-cap mutual funds underperform the index over 5 years." But..is that the whole truth?
  1. The Misleading Benchmark. Most studies compare active funds with TRI (Total Return Index). But can you actually invest in TRI? NO. So, why compare with something retail investors can't access? Let’s fix that. Let's compare with actual index funds, not TRI.
  2. TRI vs Index Fund: 5-Year Returns Here’s what the narrative says: Only 15% of large-cap funds beat TRI over 5Y. Sounds bad? But.. When compared with actual index funds, that number jumps to 58%! 👉 Yes, 58% of active funds beat the index fund over 5 years.
  3. What About 3Y & 1Y Returns? Compared to TRI: ✅ 3Y: 54% of active funds outperformed ✅ 1Y: 53% of active funds outperformed But compared to index funds: ✅ 3Y: 69% outperformed ✅ 1Y: 56% outperformed Still think active funds are losing?
  4. Many recommend index funds and charge: 👉 0.75% advisory fee ➕ 18% GST = 0.89% effective drag Let’s subtract this from index returns. Now re-check outperformance of active funds: 🔼 5Y: 77% beat index fund (post-fee) 🔼 3Y: 81% 🔼 1Y: 69% Numbers just flipped.
  5. Let’s Talk AUM – The Asset Weight Truth. If a ₹400 Cr fund outperforms and a ₹40 Cr fund underperforms. Equal-weight studies say: “50% underperformance.” 🤦‍♂️ But your money goes into bigger funds. Let’s use asset-weighted data. Here’s what we find 👇
  6. Asset-Weighted Outperformance vs TRI 📌 5Y: 46% of assets beat TRI 📌 3Y: 71% of assets 📌 1Y: 75% of assets So, while only 15% of funds beat TRI in 5Y. 👉 46% of your invested assets actually did. Let that sink in. 💡
  7. Asset-Weighted Outperformance vs Index Fund Now let’s use actual index fund benchmarks: ✅ 5Y: 75% of assets beat index fund ✅ 3Y: 72% ✅ 1Y: 76% You sure passive is always better? Wait. There's more.
  8. Index Fund + Fee vs Active Funds (AUM Weighted) When we subtract that 0.89% fee from index funds, active funds go beast mode: 5Y: 90% of assets beat passive 3Y: 86% 1Y: 95% Yes, you read that right: 95% of active fund assets beat index fund (with fee) in 1 year.
  9. Also..Index Funds underperform TRI. Over 5 years, index funds themselves trail TRI by: 🔻 1.5% CAGR on avg 🔻 1.3% over 3Y 🔻 ~1% over 1Y So, not only are we comparing active funds to something uninvestable (TRI), we’re ignoring fees AND AUM impact. 🤷‍♂️
  10. Next time someone says: “Active underperforms,”..Ask: ✅ Compared to what? TRI or index fund? ✅ Fees included? ✅ AUM weighted? ✅ Retail investor perspective or just headlines? 👉 Because data tells a VERY different story.
  11. 🧠 Don’t buy the passive vs active narrative at face value. 🧾 See through the TRI traps, fee drags & media spin.
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