Return Performance and Cost Efficiency of Equity Mutual Funds in India: A Descriptive Study of Active and Passive Funds

The Indian equity mutual fund sector has experienced significant growth over the last ten years due to rising participation of households in capital markets, government regulations, and rising awareness among investors. In the growing investment environment, the debate between actively managed and passively managed equity mutual funds has become an important aspect for investors. This research paper focuses on the risk-return behaviour and cost-effectiveness of equity mutual funds in India through a descriptive study of actively managed and passively managed equity mutual funds from 1 April 2020 to 31 March 2025, which is a period of increased market volatility and a successful post-pandemic recovery.

The research relies completely on secondary data, which has been gathered from mutual fund fact sheets and financial databases. The Net Asset Value (NAV) and Total Expense Ratio (TER) information were gathered from mutual fund fact sheets, and the Compound Annual Growth Rate (CAGR) was calculated by the researcher using the NAV information for the period of the research. A sample of ten equity mutual fund schemes, consisting of five actively managed and five passively managed schemes, was chosen for analysis. Descriptive statistical analysis, comparison through tables, and charts were used to assess the return and cost characteristics of the two types of schemes.

The findings reveal that actively managed equity mutual funds are likely to display greater potential for returns, as indicated by relatively higher CAGR values, but are also likely to be associated with higher expense ratios. On the other hand, passively managed equity mutual funds are likely to display greater cost efficiency and relatively stable, market-linked performance. The study draws attention to the need to balance return optimization and cost efficiency in mutual fund investment. The findings are useful for investors, financial planners, and policymakers concerned with equity mutual fund performance in emerging markets such as India.