According to reports from Mint, active share is the percentage of a fund's portfolio that differs from its benchmark by weight. If a fund mirrors the index exactly, its active share is zero, while a portfolio with no overlap would have an active share of 100. Most funds sit somewhere in between, with a fund having 50% active share effectively overlapping half its portfolio with the index while the rest is allocated differently. The higher the active share number, the more the fund diverges from its benchmark, while the lower it is, the more it resembles the index regardless of marketing claims.
As reported by Mint, active funds charge significantly more than index funds for low-cost replication of the market. An index fund charges for market replication, while an active fund charging significantly more implicitly claims its portfolio construction is meaningfully different. Active share helps investors test this claim before examining returns, with the obvious question being whether a cheaper index fund tracking the same benchmark would deliver nearly identical exposure if a fund's active share is low.
According to Mint, active share does not necessarily indicate better performance, as a fund can have high active share and still underperform due to poor stock selection. The metric tells how different a fund is, not how good those differences are. Active share is not a standard disclosure in India, but investors can calculate it using monthly fund portfolio data from asset management companies and benchmark weights from index funds tracking the same benchmark. The calculation involves matching 50-100 stocks across portfolios and dealing with naming differences, requiring at least an hour for the first calculation.
As reported by Mint, with flows into actively managed equity funds rising, active share offers a missing dimension: whether a fund is actually doing something different beyond standard benchmark tracking. The metric works best as a diagnostic tool alongside other metrics including long-term performance, consistency of strategy, and expense ratio. This becomes particularly relevant as more investors scrutinize expense ratios and past returns in the current market environment.
