Mr. Market fund manager is almost always right !

Mr. Market fund manager is almost always right Mr. Market fund manager is almost always right !

During last 5 years stock market in India was buoyant. Indices Nifty and Sensex made new lifetime highs with Nifty crossing 11000 mark and Sensex crossing 40000 mark. Midcap index too recorded new highs. Many individual stocks have been wealth creators. Many people invested in Mutual funds and earned during this period. But do you know if your earnings in Mutual funds over the last 5 years have actually beaten the benchmarks ? In this article we try to find the answer to this question.

Past performance of active funds in India

We have taken actively managed large cap funds for our analysis and benchmarked their returns over the last 5 years with that of the Index as well as Exchange traded Index funds (ETF’s) and here is what we found.

Largecap fund and ETF returns table Mr. Market fund manager is almost always right !


  1. For an investment period of 5 years, NIFTY and Sensex based ETF which are passively managed index mutual funds have performed as well or as worse as actively managed large cap mutual funds. The alpha returned by large cap fund is negative 2.42% in case of SENSEX ETF and positive by just 3.28% in case of performance over NIFTY ETF. This means that on an average, weather you invested passively 50% in NIFTY ETF and 50% in SENSEX ETF or invested actively in large cap Mutual fund it would have made no difference to your returns. You would not be better or worse by investing in active large cap mutual fund over a 5 year investment period vis-à-vis investment in ETF.
  2. However if you take a 3 year investment period, both SENSEX and NIFTY ETF have beaten the average returns of large cap mutual fund hands down which an over performance of 5.75% and 11.26% respectively.
  3. But what if you invested only for 1 year ? Well in the last 5 years only in 2014 and 2015 did large cap mutual funds do better than their benchmarks. In 2016 and 2017 the alpha was very marginal and in 2018 and 2019 again the ETF’s have performed better than the large cap mutual funds.


As the market matures in India, large cap fund managers are finding it increasingly difficult to generate Alpha over their benchmarks and commensurate to the expense ratio they charge for managing the funds.. Passively managed index funds are better investment vehicles for both short and long term than actively managed large cap funds. Close ended index ETF’s are better than open ended index mutual funds. When investing in index ETF, invest 50% in NIFTY ETF and 50% in Sensex ETF to get the best returns as the composition and weightage of the indices differ.

Want to invest in ETF right now! But do not have a trading account?

OPEN online trading ACCOUNT Mr. Market fund manager is almost always right !

Related Post

Add a Comment

Your email address will not be published.