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How index-like are active equity funds? R-squared view

Large cap funds have a median R-squared of 0.96 against their benchmark; sector funds 0.83. Which active funds track an index, and which do not.

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A chess board with pieces mid-game, suggesting strategy

One number for how close a fund runs to its index

R-squared compares a fund's monthly returns with its benchmark's. At 1.00 the fund moves exactly with the index; at 0.50 half its ups and downs are its own. High R-squared is what index funds have. It is also, we found, what many active funds have.

We took Direct Growth equity funds with about three years or more of history, regressed against the category benchmark total-return index, and took the median R-squared in each category.

By category

Category Funds Median R² Lowest Highest Median tracking error
Large Cap 30 0.963 0.839 0.986 2.97%
Value 21 0.936 0.750 0.976 4.01%
Mid Cap 29 0.932 0.712 0.970 4.86%
Small Cap 24 0.926 0.891 0.961 6.57%
Large & Mid Cap 26 0.924 0.714 0.985 4.43%
Dividend Yield 9 0.921 0.821 0.979 4.57%
Flexi Cap 36 0.919 0.731 0.978 4.66%
ELSS 48 0.915 0.682 0.999 4.80%
Multi Cap 21 0.902 0.820 0.968 4.99%
Focused 27 0.901 0.682 0.962 5.15%
Sectoral/Thematic 137 0.833 0.300 0.959 7.05%

Every diversified category has a median above 0.90. Large caps are the most index-like at 0.963 with a median tracking error of just under 3%. Sectoral and thematic funds are the least, at 0.833, with a lowest value of 0.300.

Tracking error, the annual volatility of the gap to the index, tells the same story: it climbs from 2.97% in large caps to 6.57% in small caps.

The most index-like active funds

The ten highest among the diversified categories, excluding the one index fund noted below:

Fund Category R² Benchmark
Aditya Birla Sun Life Large Cap Large Cap 0.986 Nifty 100 TRI
HDFC Large & Mid Cap Large & Mid Cap 0.985 Nifty 500 TRI
Kotak Large Cap Large Cap 0.984 Nifty 100 TRI
Edelweiss Large Cap Large Cap 0.983 Nifty 100 TRI
Canara Robeco Large Cap Large Cap 0.981 Nifty 100 TRI
Tata Large Cap Large Cap 0.981 Nifty 100 TRI
Canara Robeco ELSS Tax Saver ELSS 0.981 Nifty 500 TRI
Mirae Asset Large & Midcap Large & Mid Cap 0.980 Nifty 500 TRI
Mirae Asset ELSS Tax Saver ELSS 0.980 Nifty 500 TRI
HDFC Dividend Yield Dividend Yield 0.979 Nifty 500 TRI

Navi ELSS Tax Saver Nifty50 Index Fund sits at 0.999, since it is an index fund filed under ELSS. A fund this close to its index leaves little room for the manager to add or subtract, and an active fee is paid for that room. Our index vs active cost comparison puts numbers on the fee gap.

The least index-like

The lowest R-squared values among the diversified categories all sit around 0.68–0.71:

Fund Category R² Beta Tracking error
Motilal Oswal Large and Midcap Large & Mid Cap 0.714 1.17 12.03%
Motilal Oswal Midcap Mid Cap 0.712 0.96 11.40%
Samco ELSS Tax Saver ELSS 0.710 1.05 10.56%
Motilal Oswal ELSS Tax Saver ELSS 0.682 1.15 12.66%
Motilal Oswal Focused Focused 0.682 1.03 11.11%

Four of the five are from one fund house, which runs concentrated, high-conviction portfolios. Tracking errors above 10% mean these funds can look very different from their benchmark in any month, in either direction.

How to use this

  • A high R-squared does not make a fund bad. It makes it predictable relative to the index.
  • If R-squared is 0.98 and the fund charges several times an index fund's fee, ask what the extra fee buys. See index fund tracking error for what passive funds cost.
  • If R-squared is low, judge the fund on whether its different path earned more, using alpha and capture ratios.

Source: our fund metrics as of 12 October 2026, Direct Growth plans, monthly returns versus the category benchmark TRI. Categories with fewer than five qualifying funds are omitted.

Frequently asked questions

What does R-squared tell you about a fund?

It is the share of a fund's monthly return movement explained by its benchmark, from 0 to 1. At 0.98 almost everything the fund did could be predicted from the index. At 0.70 about 30% was the fund manager's own positioning.

Does a low R-squared mean a better fund?

No. It means the fund behaves differently from its benchmark, which can help or hurt. The measure says nothing about whether the difference earned a return.

Which window and benchmark are used?

Monthly returns against each fund's category benchmark total-return index (for example Nifty 100 TRI for large caps, Nifty 500 TRI for ELSS), over the trailing period the site uses for risk statistics, about three years. Funds with under roughly three years of NAV history are excluded.

This is commentary on published data, not investment advice. WealthTicker is not a SEBI-registered adviser or distributor. Figures are WealthTicker’s own calculations from public data — AMFI’s fund NAVs and disclosures, NSE’s index and FII/DII files, and the fund houses’ monthly portfolios (how we calculate). They are as of the dates stated and can be revised by their source.

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