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Active vs. Passive Small-Cap Funds: What Works in Rallies May Fail in Falls
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Moneycontrol•24-09-2026, 15:52
Active vs. Passive Small-Cap Funds: What Works in Rallies May Fail in Falls
- •Passive small-cap funds excel in broad rallies by tracking the index, while active managers can adjust portfolios during market shifts.
- •Chintan Haria of ICICI Prudential AMC highlights that active funds' flexibility is crucial across different market cycles, especially during downturns.
- •Recent data shows active small-cap funds, on average, lost less in 2025's decline and gained more in 2026's recovery compared to the Nifty Smallcap 250 Index.
- •However, active fund performance varies widely, with the best returning 32% and the worst 1.5% in 2026, emphasizing the importance of manager selection.
- •Investors should evaluate active funds based on consistency, downside protection, volatility, and the fund manager's track record across various market phases, not just recent returns.
Key Questions Answered
According to Arjun Guha Thakurta, the small-cap fund category declined by an average of 4.5 percent in 2025, while the Nifty Smallcap 250 Index fell 6.01 percent. In 2026 so far, active funds have returned an average of 15.5 percent, whereas the index gained 9.88 percent.
Passive funds track an index and effectively capture broad rallies by participating across the entire market. Conversely, active managers possess the flexibility to rebalance and drop individual stocks facing poor valuations or risks during downturns, whereas passive indices continue holding those stocks.
The Nifty Smallcap 250 Index undergoes semi-annual reviews and reconstitutions in March and September, adhering to the methodology established by NSE Indices.
