Active vs. Passive Management in Volatile Markets: Evidence from Indian Large-Cap Mutual Funds (2020–2025)

Abstract

This study examines the comparative performance of active and passive large-cap mutual funds in India over the period 2020–2025, characterized by significant market volatility including the COVID-19-induced downturn and subsequent recovery phases. The primary objective is to evaluate whether active fund management delivers superior risk-adjusted returns relative to passive investment strategies.

The analysis is based on a purposive sample of ten funds, comprising five actively managed funds and five passive funds tracking the NIFTY 50 index. Monthly Net Asset Value (NAV) data were used to compute returns and risk measures, including standard deviation, beta, and the Sharpe ratio. An independent sample t-test was applied to assess the statistical significance of differences in performance.

The results indicate that active funds generated marginally higher average returns compared to passive funds. However, this advantage was accompanied by higher volatility. When adjusted for risk, both categories exhibited similar Sharpe ratios, and the difference was not statistically significant at the 5% level. These findings suggest that the apparent outperformance of active funds is primarily driven by increased risk exposure rather than consistent managerial skill.

The study concludes that passive investment strategies provide a cost-efficient and stable alternative for long-term investors in the large-cap segment. The findings contribute to the ongoing debate on market efficiency and have implications for investors, financial advisors, and policymakers in emerging markets.