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Summary: Confused whether to invest in active large-cap funds or take the passive route? We look at the performance of the active large-cap universe over long-term horizons and give our verdict.
Should I invest in a large-cap fund or an index fund for a 10-15-year horizon? – Anuj Choudhary
If you have ever tried to pick a large-cap fund for your portfolio, you have probably run into this dilemma: Should you go with an actively managed large-cap fund, hoping the fund manager can beat the market, or should you simply buy a large-cap index fund and settle for whatever the market gives you? It is a fair question, and the answer isn't as obvious as it seems.
The active track record isn't encouraging
When it comes to long-term performance, most active large-cap funds have struggled to generate alpha or beat the market consistently.
Let's start with the numbers. When you compare the performance of the active large-cap category (for regular plans) with its benchmark, the BSE 100 TRI, the category generated 11.58 per cent annualised returns over a 10-year period, versus the index’s 12.68 per cent. Over a five-year period, too, the category earned 10.24 per cent, compared to the benchmark’s 10.82 per cent.
To understand the picture better, we then considered the category’s rolling returns (a more comprehensive measure of performance) over different time periods. Over five-year daily rolling return periods, of the 28 actively managed large-cap funds we studied, exactly half, or 14 funds, managed to outperform their benchmark, the BSE 100 TRI, while the other 14 fell short. That's about as close to a coin toss as investing gets.
Stretch the time frame to 10 years, and things get worse for active management. Only 10 out of 23 large-cap funds, or roughly 43 per cent, managed to beat the index. In other words, more than half the funds that have been around for a decade have failed to justify the extra fees and effort that come with active management.
Interestingly, over a 15-year period, the picture improves slightly. Twelve out of 22 large-cap funds, or about 55 per cent, outpaced the BSE 100 TRI. So, patience does help a little, but even here, nearly half the funds still lag behind.
Taken together, these numbers tell you something important: beating the benchmark consistently in the large-cap space is hard, and the odds aren't stacked heavily in favour of active funds, no matter how you slice the time period.
Why active large-cap funds struggle
The underperformance isn't really a case of poor fund management. It comes down to structure. Large-cap funds are mandated to invest at least 80 per cent of their assets in the top 100 companies by market capitalisation. This is, by design, a narrow universe.
These are already the biggest, most well-researched, most widely-owned companies in the country. Every large brokerage, every institutional investor and every analyst is tracking them closely. That means there's very little informational edge left to exploit; the proverbial low-hanging fruit has already been picked.
On top of that, large companies, simply because of their size, find it structurally harder to grow at the blistering pace that can generate market-beating returns. A company with a market capitalisation of a few lakh crores cannot double its business as easily as a small or mid-sized company can. This isn't a comment on the quality of these businesses, as many of them are excellent, but on the mathematics of scale. And when the underlying pool of eligible stocks itself has a natural ceiling on growth, active fund managers within that pool have much less room to differentiate their returns from the benchmark.
So, where should your money go?
Given this backdrop, a large-cap index fund starts to look like the more sensible choice for this part of your portfolio. It simply mirrors the benchmark's returns, so you know roughly what you're getting. Just as important, it comes at a fraction of the cost of an active fund.
Active large-cap funds, on the other hand, charge higher expense ratios, and as the data shows, a large proportion of them still haven't managed to beat the index despite that added cost. When you're paying more for a lower probability of outperformance, it becomes a tough case to make for active management in this specific category.
Does a large-cap fund even fit your portfolio?
Before you rush to pick an index fund or an active fund, it's worth stepping back and asking yourself: Does a large-cap fund suit your portfolio at all? The right allocation depends on your goals, your time horizon and the rest of your portfolio.
If you'd like personalised guidance on this, subscribe to Value Research Fund Advisor to find out whether a large-cap fund deserves a place in your investments and, if so, which one.
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This article was originally published on July 28, 2026.
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