Nifty 50 vs Large caps – Can large caps beat the index or we should just invest in a Nifty 50 index fund?

Index investing vs. active mutual fund investing is a never-ending debate in India or internationally. The common consensus being that it is very difficult to beat the index. Let us try and see this in the Indian mutual fund industry in the largecap segment. I am taking data from 2014 to 2025 and including most largecap funds that existed before 2014. Funds launched post 2014 have not been included.

Methodology: I have taken 21 large cap funds and compared returns of each of these against UTI Nifty 50 index fund. The methodology I would use to compare returns are to see what if we had started SIP in both these funds (largecap and UTI) at the start of the year from 2014 to 2020 and see returns given or corpus created each subsequent month upto January 2025. For example, if you started SIP in January 2014, we would see the corpus value of both funds at the start of the month from February 2014 to January 2025 i.e. we would have 120 data points (accumulated corpus as on that month) for which we would see which fund gave higher returns. Similarly for SIP started in 2015 we would have 108 data points, SIP started in 2016 would have 96 data points and so on. Most investors are now investing through SIPs and hence analyzing data by taking monthly SIP investments is most relevant.

Table 1: UTI Nifty 50 performance against 21 largecap funds

Source: Advisorkhoj.com, Shwealth analysis

The above table shows that had we started SIP in 2014, then clearly large caps was a better bet than the index. However, after that it is not the case and it is mostly a 50:50 case which would mean rather than trying to pick winners out of all the 21 largecap funds, it is much better to pick a Nifty 50 index fund. But let us introduce an additional parameter of the AUM of the fund. If we keep a threshold of minimum AUM size of INR 5,000 crore then we are down to 10 largecap funds i.e. Nippon, ICICI, SBI, Kotak, Franklin, HDFC, Canara Robeco, Aditya Birla, Mirae and Axis.

Table 2: UTI Nifty 50 performance against 10 largecap funds

Source: Advisorkhoj.com, Shwealth analysis. Coloured cells indicate funds consistently beating Nifty 50

The picture changes a lot once we take only the 10 funds in terms of AUM. From about 50% of the time when Nifty was ahead, now that drops to below 40%. Still the Index fund does surge ahead of all the largecap funds from time to time and we cannot say there is a clear winner. If you do not want to analyse past data and keep it simple investing in a Nifty 50 fund is a no brainer. If you want to have the hope of beating the index, analyze past data and invest in the top funds by AUM and returns, history here tells us they would surely surge ahead of the Nifty 50 from time to time and some of them may go ahead and beat the index.