The underwriting question
What must an active fund prove before its fee and tracking risk are justified?
It must overcome both benchmark underperformance and the possibility that weak funds disappear from the sample. In the 2025 scorecard, a majority of Indian large-cap funds underperformed over one, five and ten years; category choice and survivorship still matter before generalising.
large-cap funds underperforming in 2025
Three quarters trailed the relevant benchmark over the one-year period.
five-year underperformance
The large-cap category's result worsened over this horizon.
ten-year underperformance
A long horizon did not make outperformance common in the category.
ten-year non-survival across categories
S&P reported that roughly this share of funds across categories failed to survive the decade.
Why this case matters
A fund league table can improve when the losers vanish. Merged or liquidated products no longer appear in a current list, although an investor could have owned them. SPIVA's value is that it places performance and survivorship inside a defined methodology.
The year-end 2025 India results do not prove that no active manager can add value. They raise the evidence threshold. A manager must explain the source of edge, the capacity of the strategy, the benchmark and the fee-adjusted record through unfavourable periods.
Transaction chronology
What happened, and when the meaning changed
A manager selects mandate, benchmark, portfolio and fee.
Future category placement and benchmark fit should be clear before performance is observed.
Funds may merge, liquidate or change style.
Removing failed products creates survivorship and backfill bias.
The scorecard closed its measurement period.
One-, five- and ten-year results captured different market regimes.
A live fund is selected after historical winners are visible.
Persistence, fees and purchase timing determine whether backward selection translates into future outcome.
Economics and mechanics
Follow the claim, not the label
Use the correct benchmark
A mid-cap or factor-tilted fund can beat a broad index while merely loading a different risk factor. Match mandate, size, style, total-return treatment and currency before calling the residual alpha.
Reinsert disappeared funds
Ask whether the database includes liquidated and merged products and whether inception dates are honoured. A current-fund-only table answers how survivors performed, not what an investor could have selected at the start.
Translate fee into required edge
If an active fund costs 1 percentage point more annually, it must produce that much gross alpha merely to draw level before tax and behaviour. Over ten years, a persistent one-point drag reduces terminal wealth materially.
Stakeholder ledger
Who gained flexibility—and who kept the risk?
They receive net returns and bear selection, style, fee and behaviour risk.
They can add value through selection or risk control but must overcome costs and capacity constraints.
They define transparent rules and benchmarks that still carry methodology and concentration choices.
They can shape flows through ratings or recent performance, which may encourage return chasing.
Competing interpretations
A disciplined active process exploits a defined inefficiency, controls capacity and downside, and demonstrates fee-adjusted persistence against the right benchmark.
Recent winners are selected after luck, style exposure and survivorship have done their work; fees and tax then compound while the strategy mean-reverts.
What the evidence cannot settle
Open questions and verification limits
- Category statistics do not identify the future outperformers in advance.
- Benchmark choice can change the result and must be inspected in the methodology.
- Investor cash-flow returns can lag fund time-weighted returns because of entry and exit behaviour.
Diligence lessons
What to carry into the next investment memo
- Judge active performance net of fees against a mandate-matched total-return benchmark.
- Include closed and merged funds in any historical selection exercise.
- Ask for a causal edge and capacity limit, not a five-star badge.
- Use passive as the explicit opportunity cost, not as an ideology.
Source file
Sources are labelled by provenance. Company and provider claims remain attributed; illustrative calculations are not presented as observed results.
Institutional researchS&P Dow Jones Indices — SPIVA India Year-End 2025Open source ↗Read the AssetsNest research methodology →AssetsNest Investor Services — ARN 318691. This case study is educational and informational only. It is not personalised investment, legal or tax advice, an offer, a solicitation or a recommendation. Figures may be company-reported, institutionally estimated or illustrative as labelled. Verify current primary documents and seek appropriately qualified advice before acting.