AS MOST LARGE-CAP equity funds have underperformed their benchmarks, with 88% of actively managed funds underperforming the S&P BSE 100 last year according to S&P Indices Versus Active Funds India Scorecard for 2022, investors should gradually move to passive large-cap index funds for higher returns. When markets go through a lean phase and the fear factor is high, investors rush to redeem. As a result, fund managers have to keep cash ready so that they do not have to redeem their purchases. This leads to underperformance when the markets rise.
Moreover, the investment universe of large-cap funds is limited to only 100 companies -NIFTY 50 accounts for more than 80% of the total market cap of top 100 stocks -which leaves less room to generate alpha. So, to be able to stay with the benchmark index, most active funds have no choice but to be heavy on NIFTY stocks.
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