Active vs Passive: Which Funds Did Well in 2024?

There is a constant debate between active mutual funds and passive funds concerning tier investment strategy. 

With every passing day, people are comparing more and more of their dynamics.

With a plethora of options, the world of investing might feel like navigating a maze. This can be especially true when deciding between active and passive mutual funds. 

 

 

So, which funds performed better last year (20240? 

In the year 2024, this question remains as relevant as ever. 

Let’s dive into the performance of both strategies and see which one truly shined.

 

How the Benchmarks Performed in 2024

 

 

Let us start with the benchmarks! The benchmark indices can act as the yardstick against which active and passive funds are measured. In 2024, global and domestic markets experienced a mix of volatility and growth. For instance, the S&P 500 in the United States showcased steady, if somewhat uneven, gains, driven by technological advancements and resilient consumer spending. On the other hand, emerging markets saw varied performance, with some regions experiencing significant growth while others grappled with economic uncertainties.

In India, the Nifty 50 and Sensex demonstrated a generally upward trend, influenced by strong corporate earnings and government infrastructure initiatives. Sector-specific benchmarks, such as those tracking technology or energy, also saw notable fluctuations. The benchmarks however, experienced a series of significant plunges from late October, continuing to the end of the current financial year. These benchmark index performances seem to have set the stage for how both active and passive mutual funds fared in 2024. 

 

How Broad Market Indices Performed in 2024

 

Broad market indices, like the MSCI World Index or the FTSE All-World Index, can provide a comprehensive view of global equity markets. These indices can serve as the foundation for many index funds and ETFs, which are core components of passive mutual funds. In 2024, these indices seem to have reflected the overall market sentiment, capturing the gains and losses across various sectors and regions.

In developed markets, technological innovation and strong corporate earnings contributed to positive returns. However, inflation concerns and geopolitical tensions created pockets of volatility. Emerging markets, conversely, displayed a more diverse picture. Countries with robust domestic demand and favorable policy environments experienced significant growth, while others struggled with external pressures.

Within India, the broad market indices mirrored the domestic economic narrative. Infrastructure development, increased consumer spending, and a growing middle class all played a role in driving market performance. Investors who utilised a good MF app likely saw these trends reflected in their portfolio summaries. These broad market indices can provide a solid base for passive investments, allowing them to capture the overall market returns without the need for active management.

 

Beating the Index vs Mirroring It 

 

So, here is the core of the active vs. passive debate. Can active fund managers consistently beat the market? Or is it better to simply mirror the index with a passive fund? In 2024, this question remained a key consideration for investors.

Active fund managers aim to outperform the benchmark by carefully selecting stocks based on in-depth research and analysis. They seek to identify undervalued companies with strong growth potential. However, consistently beating the market is a challenging task. Numerous studies indicate that a significant percentage of active funds underperform their benchmarks over the long term. This underperformance can be attributed to various factors, including high management fees, trading costs, and the inherent difficulty of timing the market.

Passive funds, on the other hand, aim to replicate the performance of a specific index. They do this by holding the same stocks in the same proportion as the index. This strategy offers several advantages, including lower management fees, reduced trading costs, and greater transparency. Passive funds typically track indices like the Nifty 50 or the S&P 500, providing investors with broad market exposure.

In 2024, the success of active funds varied. Notably, as of late 2024, approximately 70% of equity mutual funds managed to outperform their respective benchmarks. Specifically, out of around 263 equity mutual funds, 183 achieved this feat. Contra funds led the pack with a 100% success rate, followed by value funds at 85%. Large and mid-cap funds also performed strongly, with a 78% success rate. However, small-cap funds faced greater challenges, with only 44% managing to beat their benchmarks. This data suggests that while active management can yield positive results, the success varies significantly across different fund categories.

Conversely, passive funds, by design, closely mirrored the performance of their respective indices. In 2024, the Nifty 50 and Sensex both posted gains of approximately 8%, despite market volatility. The Sensex gained 8.2%, and the Nifty 50 gained 8.8%. This consistency allowed investors in passive funds to capture the overall market returns without the risk of underperformance associated with active management. You might find it useful to compare the performance of both types of funds using an MF app that provides detailed historical data and analytics.

Furthermore, it is worth noting the broader market context. India’s broad market indices, while positive, underperformed some major global economies like the US and Japan, which saw gains of 30% and 19.8% respectively. However, India outperformed markets such as the UK and France. Sector-wise, Nifty Healthcare and Nifty Pharma indices saw impressive gains of around 40% each, while Nifty Realty and Nifty Consumer also performed strongly.

The decision of whether to choose active or passive funds depends on your individual investment goals, risk tolerance, and time horizon. If you believe in the ability of a skilled fund manager to consistently outperform the market, active funds may be suitable. However, if you prefer a low-cost, transparent, and diversified investment strategy, passive funds may be a better choice.

The active vs. passive debate continues to be a central topic in the investment world. In 2024, both strategies offered distinct advantages and disadvantages. Active funds presented the potential for higher returns, and as shown by the 70% of equity mutual funds that outperformed benchmarks, this potential was realised for many. Passive funds provided a reliable and cost-effective way to capture market returns, and with the Nifty 50 and Sensex both showing positive growth, these funds delivered as expected.

The performance of benchmarks and broad market indices in 2024 highlighted the importance of understanding the underlying market dynamics. These indices served as the foundation for both active and passive fund performance, providing a clear picture of overall market trends. It is important to recognise that while Indian indices grew, they were not the top global performers. Additionally, sector-specific performances, like the strong growth in healthcare and pharma, should be considered when evaluating fund success. 

 

 

Wrapping Up

 

Ultimately, the best investment strategy depends on your individual circumstances. You can consider your risk tolerance, investment goals, and time horizon before making a decision. Diversification remains a key principle, and you might find that a combination of active and passive funds aligns best with your needs.

Regardless of your choice, staying informed about market trends and fund performance is essential. Utilising available resources, such as financial news websites, investment research platforms, and user-friendly MF app interfaces can help you make informed investment decisions. Whether you choose to trust the expertise of a fund manager or prefer the simplicity of mirroring the market, understanding the performance of both active and passive strategies is crucial for achieving your financial goals.

 

 

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