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In India, Mutual Funds Have Beaten the Nifty (No Survivor Bias Edition)


In the west, it’s common to take ETFs and say that they have beaten managed funds by a wide margin because markets are efficient and fund managers eat too much and yada,yada,yada.

This is apparently not true in India, where fund managers seem to be able to easily beat the Nifty ETF.

So in India, it’s been better to buy mutual funds than to buy Index ETFs. And even more in the last one year.

Comparison Points

Let’s be honest first and say that:

a) Everything in India in terms of equity is compared to the Sensex or the Nifty. So don’t tell me to compare to the S&P 500 or something. The Nifty is good enough.

b) No survivor bias: It’s not fair to compare today’s top funds with the Nifty. Why don’t we just take funds that were the best around 10 years ago? I found a link by Rediff, which has the top funds in 2005. Let’s take the top few funds of that time, and see how they have done with respect to the Nifty.


The Nifty Raw index is not a good thing to compare with mutual funds, because it does not include the impact of dividends. Mutual funds invest in the underlying stocks so their NAV contains dividends, reinvested. Comparing with the NAV of the Nifty ETF wouldn’t make sense too, as these ETFs pay out dividends (so NAV falls, and we don’t want to compare a dividend paying NAV with a mutual fund’s growing NAV). We therefore use the Nifty Total Returns index which is released by the NSE and includes the impact of reinvesting dividends.

For mutual funds we use the “Growth” option NAV which is the same as reinvesting dividends.

Mutual fund data as of 14 Aug 2014. The multi year results are annualized growth rates. Data on mutual funds from

The Result

Here’s what we get:



  • Four of the top six were able to beat the Nifty (total returns) in 1 year, 3 year and 5 year returns.
  • Of the other two, only one has lagged in the five year returns, and even that has beaten in the 1 year timeframe. (A comeback?)
  • Only Franklin Bluechip looks like a laggard today.

We haven’t compared the rest of the lot, but taking the top 6 and getting such an incredible result is proof enough, we think.


There are good reasons for it:

  • Indian funds don’t charge too much in fees. It’s capped at 2.5% and even then, these funds charge lower.
  • After 2009, with entry loads gone, you would have seen just as much return. (In the US entry loads can be as high as 6% in managed funds)
  • Indian funds that buy stocks not in the Nifty 50 have done well, as those stocks have risen sharply. And most of these funds own more than just the Nifty 50 stocks.
  • After Jan 2013, we have “direct” funds which will add another 0.5% to 1% to your return, so that makes these funds even better vehicles.

Disclaimer: This is not an advertisement to go buy funds. I’m just debunking a myth. I was as surprised as many of you, honestly.

The Takeaway

Listen carefully. People will quote research papers to say that ETFs are better than funds. This might be true for a different market, but it’s definitely not been true for India, and definitely not in the last one year.

In India, Mutual Funds have (generally) done better than the Index.

Please feel free to prove me wrong. But don’t use things like risk adjusted returns (no one cares, it’s a choice between Nifty or a fund). Or “on average” (because on average expects to you to invest in funds that have always been crappy, which is like what are you smoking).

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