The Optimism Bubble of the Indian Mutual Fund Ecosystem 24Sep2025
(The views expressed here are for information purposes only and should not be construed as a
recommendation or investment advice. While the author is a CFA Charterholder
with nearly 25 years of experience in financial markets, this content
is intended to share general insights and does not constitute financial
guidance. Please consult your financial
adviser before taking any investment decision. Safe to assume the author
has a vested
interest in stocks / investments discussed if any.)
The Indian mutual fund industry — comprising asset management companies (AMCs), brokers, distributors, finfluencers and financial advisers — has a vested interest in spinning every market setback as a positive development.
This is not done out of altruism, but to safeguard the steady stream of SIP inflows from retail investors, which are the lifeblood of their fee-based revenue model.
At its core, this mutual fund ecosystem is a profit-motivated network. And like any sales-driven industry, it relies heavily on narrative control — often cloaking self-interest in the garb of investor education or national duty.
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See related:
Why Do Indian Equity Mutual Funds Always Disappoint Investors? (SPIVA data)
Tweet / X Post thread on Equity mutual funds underperformance (SPIVA data)
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They live in their own optimism bubble -- their overly optimistic narratives does not gel with the ground reality of actual investors.
The same intermediaries who once glorified high GST and punitive income taxes as "nation-building" now rebrand modest tax cuts as a "festival gift." The script changes, but the spin remains.
This has led to a large-scale distrust of financial intermediaries in India. There is an inherent disconnect between the industry’s relentlessly optimistic messaging and the actual experiences of investors navigating market volatility, poor fund performance or opaque fee structures.
Many investors now view this industry with growing scepticism, seeing it as more interested in managing perception than managing portfolios.
The author has highlighted the gross underperformance of Indian mutual fund industry in the past.
While the mutual fund industry spends crores on ads promoting long-term investing via SIPs (with “Mutual Funds Sahi Hai” sloganeering), what often goes unspoken is that a majority of actively managed funds fail to beat their benchmarks — even over five to 10 years.
Several studies and periodic SPIVA reports (S&P Indices Versus Active) -- the latest one with 31Dec2024 data -- show:
> Over 5 years: 60 to 90 per cent of active equity mutual funds in India underperform their benchmarks
> Over 10 years: The figure is no better — most Indian active mutual funds trail passive alternatives
And yet, distributors keep pushing active funds with high fees, to unsuspecting retail investors.
As described recently, with great sarcasm, by a trader named Deepak through an X Post: "Even Sun rising and setting is benefiting India." And he further exhorts the industry: "For heavens' sake, For once tell us what is not in India's benefit."
Of course, the consistent mutual fund underperformance is not India-specific, it's a global phenomenon. A comprehensive study done by Michael C. Jensen covering 115 active mutual funds in the US concluded:
“There is very little evidence that any individual fund was able to do significantly better than that which we expected from mere random chance.”
Mutual fund underperformance is only one part of the problem. Many of the industry's practices can be actively detrimental to investors, especially retail ones.
Poorly performing funds are quietly merged or shut down, making track records look cleaner than reality.
Retail investors often get stuck in these schemes — without realising the underperformance.
Many large-cap active funds are basically closet indexers with high fees — hugging the Nifty 50 or Sensex, but charging 1.0–1.5 per cent for doing so. Index hugging is rampant in the Indian mutual fund industry.
A passive Nifty 50 or Sensex index fund with 0.10 per cent expense ratio would outperform them over time.
The overall idea is:
We need to question the blind faith pushed by the industry. Demanding accountability and transparency from fund managers is investors' right. And investors should evaluate actual outcomes, not just glossy promises.
Of course, mutual fund products are inherently simple and easy to use. When used thoughtfully, they serve the long-term goals of most investors remarkably well.
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References:
Above image Wikimedia: "Soap Bubbles" (ca.1733-1734) by Jean Siméon Chardin
Tweet 20Sep2025 from Deepak > screenshot >
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Disclosure: I've got a vested interest in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if any.
Disclaimer: The analysis and
opinion provided here are only for information purposes and should not be construed
as investment advice. Investors should consult their own financial advisers
before making any investments. The author is a CFA Charterholder with a vested
interest in financial markets.
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