Smallcap funds emerged as the strongest performers among active equity schemes, with 24 out of 30 schemes outperforming the Nifty Smallcap 250 Total Return Index (TRI) over the one-year period, according to Value Research data. Flexicap funds also demonstrated robust performance, with 28 out of 40 schemes beating the Nifty 500 TRI during the same period. The outperformance ratio strengthened significantly over longer timeframes, with 26 out of 35 schemes outperforming over a three-year period, as reported by Business Standard.
Midcap funds posted a lower outperformance ratio of approximately 57 per cent, while largecap funds delivered relatively muted performance with only about half the schemes outperforming in the one-year period. According to Business Standard reports, largecap schemes faced a relatively more challenging environment due to weakness in heavyweight sectors such as banking and information technology, which carry significant weight within largecap indices. Largecap funds typically hold 3 to 5 per cent cash, avoid high concentration, and are constrained in picking non-largecap names, cutting their ability to generate alpha during top-heavy market conditions.
The comparatively better performance of active schemes, especially in the smallcap space, was driven by improved market breadth and greater stock-picking opportunities amid heightened volatility. As reported by Business Standard, smallcap funds experienced a significant correction around a year back, with the Nifty Small Cap 250 TRI down almost 15 per cent in the last quarter of FY25, while the Nifty 50 TRI remained relatively flat. Nilesh Naik of PhonePe Mutual Funds attributed the outperformance to recovery in quality smallcap stocks following the sharp correction, with many active smallcap funds focusing on relatively stronger fundamentals able to outperform their benchmark.
Active smallcap funds benefited from the availability of a wider investment universe, not constrained to the 250-stock index and able to exploit a much wider universe including largecap and midcap names. According to Ankur Punj of Equirus Wealth, sector-specific alpha in infrastructure, pharma/healthcare, and banking/financial services pockets contributed to the outperformance of selected schemes. The ability to ride both breadth expansion and pockets of largecap strength, combined with focused portfolios and high conviction positions, enabled fund managers to generate meaningful alpha over benchmark indices, as noted by Feroze Azeez of Anand Rathi Wealth.
