Most mutual funds in India underperform the Nifty 50, yet fund managers earn crores. Here’s why index funds may be the smarter bet in 2025.
Why Mutual Fund Managers in India Are Lagging in 2025 – And Index Funds Are Outperforming Them
Are mutual funds in India still “SIP worthy”?
SPIVA is a research scorecard published by S&P Dow Jones Indices that compares the performance of actively managed mutual funds against their respective benchmark indices like Nifty 50.
A recent SPIVA(S&P Indices Versus Active) report shows that over 80% of active mutual fund managers underperform the market.
Yet, they still charge you high fees (Exit Load and Expense Ratio) and earn salaries in crores.
Let’s explore why more and more investors are thinking of switching to index funds. And more importantly, whether your fund manager is actually worth your money.
Fund Managers in India: Salaries of Crores for Underperformance?
Yes, it’s true. Top fund managers in India earn between ₹1–5 crore annually, even if the fund managed by them fails to beat the basic minimum of benchmark indices returns. That too on a five year returns basis.
But here’s the kicker: this salary comes from your investments, your SIPs via high management fees,i.e., Exit Load and Expense Ratio
If your fund hasn’t outperformed the Nifty 50 in the last few years, you’re practically paying more for underperformance.
The Hidden Cost: High Expense Ratios in Mutual Funds
Actively managed funds charge 1.5–2.5% expense ratios, while index funds are as low as 0.10–0.30%.
That difference, though seems inconsequential, if calculated taking compounding into account over 10 years, could essentially mean lakhs in lost returns.
You’re not just investing, you’re silently funding someone else’s mansion from your own pocket.
Closet Indexing: The Mutual Fund Industry’s Best-Kept Secret
Many mutual funds claim to be actively managed, but simply mimic the Nifty 50 with minor tweaks. For example, top 40 of NIFTY 50 companies are included in the Mutual Fund Holdings in the same weight that they hold in NIFTY, and last 10 are changed. This is known as closet indexing.
So, what are you really paying for? A fund that almost copies the index, but still charges 5–10x more?
Why Index Funds Are Booming in 2025
More and more Indian investors are choosing low-cost index funds for their simplicity, transparency, and better long-term results.
Low brokerage platforms like Zerodha Coin, Groww, and Paytm Money have made index investing easy, even with SIPs as low as ₹100. Also, the launch of sectoral and thematic ETFs are pulling the investors away from the Mutual Funds.
What SEBI Is Doing About It
SEBI has mandated better disclosure of TER (Total Expense Ratio) for Mutual Funds and is working toward more transparency in fund comparison tools.
When comparing mutual funds, always look at returns after TER. A high-performing fund with high TER may give you lower net returns than a modest fund with low TER, as more money remains invested for compounding over the long term.
Still, the onus is on investors to demand performance, to decide best avenues for them and then put their money in.
Are All Active Fund Managers Bad?
Not at all. Some small- and mid-cap managers have beaten the market by a fairly good margin. But finding a consistent winner for long term is tough, and the risk is obviously higher.
For most retail investors, index funds offer better risk-adjusted returns without surprises, meaning small risk exposure with better results.
Final Word: Are You Paying More to Earn Less?
If your mutual fund has underperformed over 3 or 5 years as compared to benchmark or broader markets, it’s time to ask:
“Is my fund manager earning crores while I earn pennies?”
Let’s Talk: What’s Your Experience?
Has your mutual fund beaten the market returns over the years? Do you think active fund managers are able to justify their high fees and will continue to do so? Or is index investing the smarter move in 2025, and future?
Drop your thoughts in the comments below, we want to hear from real investors like you.
References:
https://www.spglobal.com/spdji/en/spiva/article/spiva-india
https://www.bajajfinserv.in/investments/closet-indexing
