Mutual fund houses always talk about the virtues of long-term equity investing. However, an analysis of data from the Association of Mutual Funds in India (AMFI) reveals that most active large-cap mutual fund schemes have struggled to generate alpha over a 10-year period.
The large-cap category, one of the biggest by assets under management, currently has 34 active schemes. Of these, 23 have a track record of over 10 years as of March 2026. However, only 3 out of these 23 schemes have outperformed their benchmarks when investments were made through the regular route (via distributors). Notably, 6 schemes significantly underperformed, lagging their benchmarks by more than 2%.
On average, these large-cap schemes delivered returns of 11.59% over the past decade—lower than the 12.80% average returns of their benchmarks, namely the BSE 100 TRI and NSE 100 TRI.
A key common factor among the three alpha-generating schemes—Nippon India Mutual Fund, ICICI Prudential Mutual Fund, and HDFC Mutual Fund—was their relatively lower expense ratios, largely due to their scale. These schemes charged 1.50%, 1.42%, and 1.61% respectively under the regular mode, compared to the industry average of 1.96% as of March 31, 2026.
Expense ratios also played a decisive role in direct investments. When investments were made through the direct route, the number of outperforming schemes rose sharply from 3 to 11. The average return in direct mode stood at 12.74%, aided by a significantly lower average expense ratio of 0.88%. The highest alpha—around 1.9%—was generated by schemes from Nippon India Mutual Fund and ICICI Prudential Mutual Fund.
Experts attribute the difficulty in generating alpha in large-cap funds to structural challenges. Taher Badshah, CIO at Invesco Mutual Fund, noted that the relatively narrow investment universe and widespread information availability about large-cap companies make outperformance harder compared to mid- and small-cap segments. In such funds, sector rotation and portfolio allocation play a more critical role than stock selection.
Sailesh Raj Bhan, President and CIO (Equity) at Nippon India Mutual Fund, added that while opportunities for alpha generation exist across market caps, achieving it consistently is challenging. It requires selecting the right risks and paying appropriate valuations—decisions driven by fund managers’ frameworks and discipline.
While acknowledging the relatively lower alpha generation in large-cap funds, Rohit Tandon, Senior Fund Manager at Kotak Mutual Fund, emphasised their role as a core portfolio component. He advised investors to use large-cap schemes as a portfolio anchor for steady compounding, resilience across market cycles, and exposure to high-quality businesses.