The Nifty200 Value 30 Index delivered a compounded annual return of 29.7 per cent in the three years ended June 2026, while the Nifty500 Value 50 Index returned 28.9 per cent. In comparison, active value funds generated an average annualised return of 15.8 per cent. Market participants attributed the outperformance of passive strategies to their greater exposure to PSU, energy, metals, and other cyclical stocks that dominated the value trade during the period.
The divergence was even more pronounced over the past year. While most active value funds posted negative returns, the Nifty200 Value 30 and Nifty500 Value 50 indices gained 14.6 per cent and 13.9 per cent, respectively.
However, active value funds largely outperformed their broader benchmark, the Nifty500 Index, during the one-year period.
According to experts, a direct comparison between active and passive value strategies can be misleading because of significant differences in portfolio construction.
"At first glance, it may seem that active value funds should deliver returns similar to value indices, but that might be an oversimplification," said Ashwin Patni, head of wealth management solutions at Julius Baer India.
Value indices typically follow a rules-based methodology, selecting stocks primarily on quantitative metrics such as low valuations. Active managers, by contrast, also assess factors such as management quality, earnings visibility, and balance-sheet strength. As a result, active portfolios can differ substantially from value indices, Patni said.
Shweta Rajani, head of mutual funds at Anand Rathi Wealth, said the recent market cycle has been particularly favourable for passive value strategies.
"This divergence in returns is largely driven by differences in investment style and portfolio construction. Nearly half of the Nifty200 Value 30 Index is allocated to PSU- and energy-linked sectors such as oil and gas, metals, and power, which have been among the strongest-performing segments in recent years," she said.
Differences in portfolio concentration and market-cap exposure have also contributed to the performance gap.
"Compared with the 30-50 stocks typically held by passive value indices and related funds, active value funds have historically been more diversified, holding around 60 stocks on average. Passive value funds have also maintained a stronger large-cap bias with limited small-cap exposure. Active value funds, on the other hand, have generally carried higher allocations to small-caps, which may have weighed on relative returns," said Piyush Gupta, director at Crisil Intelligence.
Aditya Agarwal, co-founder of Wealthy.in, said several other factors can lead to performance divergence.
"Active value funds may maintain concentrated positions, make tactical sector calls, or hold cash, all of which can create meaningful deviations from diversified value indices. In addition, many active managers combine value investing with growth-oriented opportunities, resulting in portfolios that may not closely resemble pure value benchmarks. Market cycles also matter, as some phases favour deep-value stocks while others reward quality or growth businesses available at reasonable valuations," he said.
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