Is investing in an active small-cap fund still a good idea?

Summary: Passive investing has quietly become the badge of financial wisdom among India’s money-smart investors: own the market, skip the guesswork, pay lower fees. Large-cap index funds, which simply track benchmarks like the Nifty 50, have started delivering returns that beat most actively managed peers. Naturally, many investors ask: can this passive approach work in small-caps, too? Passive investing has quietly gone from being a niche strategy to a badge of financial wisdom among India’s money-smart investors. The idea is simple: stop trying to beat the market; just own the market. Passive investing, which involves putting money in an index fund or ETF (exchange-traded fund), simply mimics a benchmark — say, the Nifty 50 — at a fraction of the cost of an actively managed fund. And in the last few years, large-cap index funds have started delivering better returns than many actively managed large-cap funds. With lower fees and zero dependence on fund managers, passive investing has its appeal. So, the next logical question is: should you go passive across the board: large caps, mid caps and even small caps? That’s where things get interesting. Ten-year performance of small-cap funds There are 13 actively managed small-cap funds with at least a 10-year history. We looked at how they performed over the last decade, from September 22, 2015, to September 22, 2025. Over this period, the Nifty 250 Smallcap TRI — the benchmark for the small-cap category — delivered a stellar 17.38 per cent annualised return. That’s already very respectable. But here’s the kicker: 10 of the 13 acti