Comparison guide
Index Funds vs Actively Managed Funds — Cost & Returns Analysis
In large-cap India, fewer than 1 in 4 active funds beat the Nifty 100 over a 5-year window. Costs win the race more often than skill does.
// the cost gap
Index funds: 0.10–0.30% TER. Active funds: 0.80–2.00% TER. Over 20 years on a ₹10 lakh corpus, this 1.0–1.5% drag costs you ₹10–20 lakh in terminal wealth, even if pre-cost returns match.
// where active still wins
Small-cap and mid-cap segments — where index inefficiency is genuine — see roughly 40–50% of active funds beat their benchmarks over 5+ year windows. International funds, sector funds and ESG funds also lack mature low-cost index alternatives in India.
// building a portfolio
A practical mix: large-cap exposure via Nifty 50 / Nifty 500 index fund; mid + small-cap exposure via active flexi-cap or actively managed mid/small-cap; international via Nasdaq 100 index fund or active overseas fund-of-fund.
// frequently asked questions
Same equity-LTCG treatment as active funds — 12.5% above ₹1.25L/year. But index funds have lower portfolio turnover, so realised capital gains inside the fund are minimal, leaving more for compounding.