Can active funds outperform benchmarks? Zerodha's Nithin Kamath says 'it's getting increasingly harder'

Can active funds outperform their benchmarks? Zerodha's Nithin Kamath says 'it's getting increasingly harder'

Low-cost brokerage Zerodha CEO Nithin Kamath on March 29 weighed on the subject of whether one should invest in active or passive funds. Kamath said on X platform (formerly Twitter) that data shows "it's getting increasingly harder for active funds to outperform their benchmarks".

In his X post, Kamath said having low-cost index funds for one's core portfolio is a 'no-brainer'.

"You can complement that with other funds, but the core should be passive funds," he said.

"I have a vested interest in saying this being part of @ZerodhaAMC, but it's a no-brainer to use low-cost index funds for your core portfolio. You can complement that with other funds, but the core should be passive funds. The data shows it's getting increasingly harder for active funds to outperform their benchmarks," read Kamath's X post.

Kamath cited S&P SPIVA data to illustrate his argument.

As per data, 51.6 percent active funds failed to beat S&P BSE 100 over 1-year period while 87.5 percent, 85.7 percent, 62 percent active funds couldn't beat the same benchmark over 3-year, 5-year and 10-year periods, respectively.

Also, 73.58 percent active funds failed to beat S&P BSE 400 Mid/SmallCap Index over 1-year period while 60 percent, 58.14 percent, 75.41percent active funds couldn't beat the same benchmark over 3-year, 5-year and 10-year periods, respectively.

I have a vested interest in saying this being part of @ZerodhaAMC, but it's a no-brainer to use low-cost index funds for your core portfolio. You can complement that with other funds, but the core should be passive funds.

The data shows it's getting increasingly harder for… pic.twitter.com/qn5EBOG20I

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— Nithin Kamath (@Nithin0dha) March 29, 2024

81.48 percent active funds failed to beat S&P BSE India Government Index over 1-year period while 75 percent, 64 percent, 90 percent active funds couldn't beat the same benchmark over 3-year, 5-year and 10-year periods, respectively, the data showed.

95.59 percent active funds failed to beat S&P BSE India Bond Index over 1-year period while 67.63 percent, 88.89 percent, 99.14 percent active funds couldn't beat the same benchmark over 3-year, 5-year and 10-year periods, respectively, the data showed.

Meanwhile, Zerodha Fund House recorded a significant surge in its assets under management (AUM) from Rs 500 crore to Rs 1,000 crore in just 40 days. The fund house had touched the asset base of Rs 500 crore on February 15.

Zerodha Fund House is a joint venture between Zerodha and smallcase. It forayed into the mutual fund space with the launch of passive funds in October 2023 after getting capital markets regulator Sebi's approval.

It has two passive funds -- Zerodha Tax Saver (ELSS) Nifty LargeMidcap 250 Index Fund and Zerodha Nifty LargeMidcap 250 Index Fund.