Do actively managed funds really outperform in India ?

Active v/s Passive Mutual funds/ETFs in India

There is no shortage of articles that talk about the out performance of actively managed Indian mutual funds over the Nifty & Sensex indices. For the developed markets version of this argument you can refer to www.bogleheads.org. 

Here I attempt to present some data that shows that with an asset allocation that is 80% NIFTY and 20% BSE Midcap (or a similar Midcap index) it may be possible to replicate the returns of leading large cap funds (that have survived over 10 years) and it maybe even possible to beat their performance.

I took the index values of Nifty and BSE Midcap and calculated returns for a portfolio that is allocated 80/20 between Nifty and BSE Midcap respectively and rebalanced every year. 

The results are below (before expenses and not including dividend reinvestment, ignoring taxes) for 2006-2016

https://docs.google.com/spreadsheets/d/1V9ih0fE5F3nRrfxh-YgFJiFi-XyERWe1JzQO4yHUuwU/pubhtml

Number of Years	CAGR
11	24.032858
10	22.57338636
9	18.7843656
8	22.98029533
7	15.39238738
6	14.42460644
5	19.12184187
4	15.95908689
3	20.81033645
2	11.11579405
1	12.7407458

The reason why large cap mutual funds outperform the Nifty/Sensex comes down to the asset allocation by market capitalization within these funds.

The asset classes in the large cap mutual funds of 4 top funds over the last 10 years (This is data from morningstar) are show below

	Giant	large	medium
Birla Sunlife (8% in cash!)	58	30	10
HDFC Top 200	63	28	8
UTI Opportunities	52	33	11
HDFC Equity Fund	57	21	9 (+10% Small)

The asset classes for Index funds that track a Midcap Index (like the BSE Midcap or Nifty Midcap 100) and Nifty are shown below  (Note I used the BSE Midcap but Nifty Midcap 100 numbers look similar)

	Giant	Large	Midcap
Midcap index fund		55	45
Nifty	80	20

hence I took the approach of 80% Nifty, 20% Sensex Midcap resulting in the asset allocation shown below.

	Giant	Large	Midcap
Midcap index		55	45
Nifty	80	20
80/20	64	27	9

the numbers could be tweaked more scientifically, but I hope you get the idea.

The numbers for the 80/20 Nifty/Midcap (without expenses & dividend re-inv, ignoring taxes) look quite similar to the returns for large cap index funds, so I am wondering if there is really any merit in the claims of mutual fund outperformance.

Comments welcome, this is really a science project and I would like to get all feedback.