'So much drama...’: Capitalmind boss Deepak Shenoy’s data reveals why active investing still works

The debate over active fund outperformance refuses to die down. Addressing the “drama” around the topic, Capitalmind’s Deepak Shenoy crunched the AMFI data for 2024 and shared his findings on X: "Since there is so much drama about active fund outperformance, I used the AMFI data and collated a quick note based on 1/3/5 year data for calendar year 2024."

His analysis shows that direct mutual funds (which reflect fund manager skill) consistently outperform across categories, though trends vary by timeframe. While large-cap funds beat their index across all periods, small-cap and mid-cap funds show mixed results—struggling in some timeframes but making a comeback in others. Broader categories like Flexicap, Multicap, and Large+Midcap have consistently outperformed benchmarks.

Shenoy’s findings reinforce a clear trend: direct plans outperform regular plans in all timeframes.

• Smallcap funds struggled in the 1-year period (only 48.1% beat their benchmark) but saw a strong recovery over 3 and 5 years, with 68.4% outperforming in the long run.
• Midcap funds followed the opposite trend—beating the benchmark in the 1-year period (69%) but lagging over 3 years (48%) and 5 years (39.1%).
• Largecap funds showed the most consistency, beating their benchmark across all timeframes—83.3% in 1 year, 71.4% in 3 years, and 61.5% in 5 years.
• Multicap, Flexicap, and Large+Midcap funds performed well in all timeframes.
• Regular plans struggled, especially over the long term.

As Shenoy put it: "Regular struggles in the longer term, by and large. But this is because part of the fee is to pay for the handholding, advice, or discipline. If you get none of these, of course, you should go direct."

What it means for investors?
The takeaway is clear: lower fees translate to better performance. Direct plans, with their lower expense ratios, have consistently delivered better returns over time. However, Shenoy notes that investors who rely on advisory support may still benefit from regular plans.

For those comfortable managing their own investments, Shenoy’s advice is blunt: "If you get none of these, of course, you should go direct."