Which largecap funds beat index funds?

Staff Writer   /   August 12, 2021

Even a few months ago, some investors complained of a majority of largecap funds were failing to beat the benchmarks. The situation is improving with some largecap equity funds delivering alpha against their respective largecap benchmarks. While actively managed funds are supposed to generate alpha given their higher expenses, nevertheless it is important to see which funds are beating indices consistently. Here is a detailed look.

1-year period

As on August 6, 2021, there are 11 largecap equity funds that beat their respective benchmark indices. Do note that every largecap fund has their own stated benchmark. This is a better way of measuring alpha i.e. excess return over benchmark, than comparing each fund randomly with Sensex or Nifty. Also, comparing a fund’s returns with the total return index (TRI) variant gives the accurate picture because TRI returns (which include dividends) are a true yardstick compared to just the price return variant.

In the 1-year period, Franklin India Bluechip Fund is number 1 with 61.00 per cent returns compared to Nifty 100 TRI gains of 46.90 per cent. It is followed by Nippon India Large Cap that beat S&P BSE 100 TRI’s 48.28 per cent return with nearly 55 per cent gain. Ranked number 3 is Tata Large Cap with 51.45 per cent vs. S&P BSE Sensex TRI’s 44.29 per cent return. The other notable alpha generators in largecap fund family are Aditya Birla Sun Life Frontline Equity, SBI Bluechip, UTI Mastershare, Mahindra Manulife Large Cap Pragati Yojana and IDBI India Top 100 Equity. The rest are HDFC Top 100, Kotak Bluechip and ICICI Prudential Bluechip.

In total 11 funds i.e. 38 per cent largecap equity funds generated alpha in the 1-year period. Some might say one-year is a small period and hence it is important to see if these gains last for longer period.

3-year period

A 3-year period is a longer time zone to see the alpha generation capabilities of a portfolio. One of the main reasons why funds cant keep performing across time periods is the sector rotation that happens. It is difficult for fund managers to change portfolios and identify them at the right time.

There are about 28 funds with a 3-year history. Importantly, 4 funds in the 1-year period drop out of the list of alpha generators in 3-year history. That means only 7 funds provided alpha i.e. 25 per cent or roughly one out of four. The list of 3-year alpha generators is quite different than the 1-year alpha winners, but there are some common names which we will come to later.

Ranked number 1 is Canara Robeco Bluechip Equity that beat S&P BSE 100 TRI’s 13.80 per cent CAGR with 16.94 per cent CAGR. 2nd position goes to Axis Bluechip with 15.04 per cent 3 year CAGR vis a vis NIFTY 50 TRI’s 13.91 per cent CAGR. And, perched at number 3 is BNP Paribas Large Cap with 14.85 per cent CAGR vs. NIFTY 50 TRI’s 13.91 per cent CAGR.

The others in the alpha generators list is Kotak Bluechip (also in 1-year list), IDBI India Top 100 Equity (also in 1-year list), Mirae Asset Large Cap and UTI Mastershare (also in 1-year list).

Active Alpha: Largecap funds
Time periodTotalBeat index *Alpha range %Did not beat indexNegative alpha range %
1 year29111.15 to 14.10181.1 to 12.2
3 year2870.20 to 3.13210.24 to 4.77
5 year2730.80 to 1.76240.85 to 5.79
respective index includes Nifty 100 TRI, Nifty 50 TRI, BSE 100 TRI and Sensex TRI as on Aug. 6, 2021

5-year period

A five-year period is a longer period than 1- and 3-year timeframes. There are 27 largecap equity funds with a 5 year track record. This is also a time period because out of the 27 funds, only 3 funds are able to generate alpha. That is just 11 per cent of largecap funds beat their benchmark over a 5 year period.

In the 5 year period, Axis Bluechip Fund gained 16.5 per cent CAGR versus Nifty 50 TRI’s 14.74 per cent. Canara Robeco Bluechip Equity rose 16.13 per cent CAGR vis a vis S&P BSE 100 TRI’s 14.69 per cent appreciation. Lastly, Mirae Asset Large Cap with a 15.36 per cent CAGR beat Nifty 100 TRI’s 14.56 per cent CAGR.

The rest 24 funds failed to generate any alpha in the 5 year period.

As you can see, there is not one largecap fund that has generated alpha across 1, 3 and 5 year periods. However, there are some funds that are either in the list in 1 and 3 year periods or 3 and 5 year periods. Given that longer period performance is seen as better, Mirae Asset Large Cap seems the best bet given its consistency in our analysis.


A majority of largecap equity funds have found it difficult to beat their benchmarks on two counts. 
One, the concentrated nature of rally has meant that unless largecap funds have large weights in a few stocks they cant outdo the benchmark. This is difficult for mutual funds to do because there are stock allocation norms for risk management. 
Two, the passive investing format of an index is pretty ruthless and keeps on adding winners while rejecting losers. This doesnt happen as fast as in many largecap funds due to certain inherent biases. 
Yet, there are a handful of largecap funds which have been consistent in beating the benchmarks over different long-term periods, which shows active asset management is not out of style yet.

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