The firm said portfolio construction should be guided by risk appetite, investment horizon, and objective-based allocation, rather than choosing between the two approaches in isolation.
It noted that passive strategies tend to work better in large, well-researched and stable markets, while active funds can add value in periods of high volatility and wider stock performance divergence.
“Investors should avoid treating active and passive funds as an either-or decision. Allocation should be based on investment goals and statistical evaluation of outcomes,” said Ashwini Kumar, Senior Vice President and Head, Market Data at ICRA Analytics.
ICRA Analytics added that mutual fund investors must remain cautious as global events increasingly drive market movements, reducing the role of domestic fundamentals in the short term.
The firm highlighted that geopolitical tensions, including US–China trade friction, the Russia–Ukraine conflict, and West Asia instability, have contributed to volatility across equity, commodity, and currency markets. These factors have also led to episodic foreign portfolio outflows from emerging markets, including India.
According to data from MFI360Explorer (as on March 31, 2026), active equity funds have largely outperformed passive funds over three- and five-year horizons across several categories, particularly mid-cap and small-cap segments. In contrast, performance gaps were narrower in large-cap categories.
Over shorter periods, both active and passive funds showed similar trends amid broad market corrections, reflecting heightened volatility rather than structural divergence.
ICRA Analytics said investors should focus on disciplined asset allocation instead of market timing, using a mix of strategies to balance cost efficiency, diversification, and return potential across cycles.
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