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Many MFDs rely on returns, risk metrics and AUM to shortlist funds for their clients.
But there’s a less-known metric quietly gaining attention — Active Share. And it might just be the smartest way to evaluate if your fund manager is genuinely earning their fee.
What is active share?
Active share is a statistical measure that tells you how different a mutual fund's holdings are when compared to its benchmark index. The higher the active share, the more actively the fund manager is deviating from the index, making distinct investment choices.
It is calculated by analysing the weightage of stocks in the scheme compared to its respective benchmark.
In simpler terms:
• High Active Share (70–100%): The fund is taking bold, independent bets.
• Low Active Share (<20%): The fund is largely mirroring the benchmark, possibly offering little added value.
This metric was first introduced by researchers at Yale and has since become a key tool for professionals looking to separate true active managers from closet indexers.
Why does active share matter?
In today’s market, where passive investing is surging and most indices are efficiently priced, understanding how fund managers manage money is more important than ever.
• A high active share could mean your manager is pursuing opportunities the index doesn’t capture — like under-researched mid or small caps, thematic plays or tactical allocations.
• A low active share, on the other hand, raises a red flag — especially if the fund is charging high active management fees. Essentially, you could be paying more for something you could get through an ETF at a fraction of the cost.
What does the latest data show?
An analysis of mutual funds from top fund houses in India reveals a striking trend across market capitalizations:
Large Cap Funds
• Average Active Share: ~20.89%
• Highest Active Share: 22.955%
• Lowest Active Share: 17.545%
• Insight: Over 80% of large cap funds in the sample had an active share below 22%, indicating a strong overlap with the benchmark index and limited active management.
Mid Cap Funds
• Average Active Share: ~32.40%
• Highest Active Share: 34.85%
• Lowest Active Share: 29.375%
• Insight: Mid cap funds show moderate activeness. Many maintain a good balance between index alignment and fund manager discretion. Most funds lie in the 31–34% active share range.
Small Cap Funds
• Average Active Share: ~37.51%
• Highest Active Share: 42.545%
• Lowest Active Share: 32.455%
• Insight: Small cap funds continue to show high active share, emphasizing stock-picking strategies. Over 60% of the funds analyzed had active shares above 36%, pointing to a stronger deviation from their benchmark indices.
Multi Cap Funds
• Average Active Share: ~34.04%
• Highest Active Share: 42.715%
• Lowest Active Share: 27.32%
• Insight: Multi cap funds show a healthy level of activeness, offering diversified exposure across large, mid, and small cap segments. A notable number of funds maintain active shares above 34%, reflecting a balanced but distinct investment approach compared to benchmarks.
Who should use this metric?
Active Share is a valuable tool for all types of MFDs to shortlist funds:
• Understand what your clients are paying for: Active Share helps determine whether you're truly getting active management — or just a pricier version of an index fund.
• Align investments with client’s goals: If your clients are seeking higher returns and comfortable with higher risk, a fund with a higher active share might be suitable.
• Gain transparency into strategy: Active Share reveals how much conviction and independence a fund manager brings to the table — helping you make more informed decisions beyond past performance or brand name.
The bottom line
In an age where performance can be deceiving and benchmarks are harder to beat, active share shines as a powerful truth-teller. It won’t predict returns but it does reveal intent. It tells you whether a manager is bold or just quietly blending in.
So, before your clients invest their next rupee, ask - Is my recommended fund really active, or just actively marketed?
Because in a market full of index huggers, the real winners are often the ones who dare to break away.
About the author:
Delhi MFD Vivek Jain is a mentor at InvestMyFunds. He is a Chartered Accountant by qualification and has over 25 years’ experience in the financial markets including over two decades experience in mutual funds and insurance. He also conducts regular Investor Awareness Programs (IAPs) runs his YouTube channel called ‘InvestMyFunds’ to offer insights on mutual funds, taxation and market trends.
