Active Share (AS) measures how different a fund's holdings are from its benchmark — specifically, the share of the portfolio that is not just a copy of the index. [1]
$$AS = \frac{1}{2} \sum_{i=1}^{N} |w_{a,i} - w_{b,i}|$$
where $w_{a,i}$ is the fund's weight in stock $i$ and $w_{b,i}$ is the benchmark's weight. AS ranges from 0 (identical to benchmark) to 1 (zero overlap). [1]
Say the benchmark (Nifty 50) has three stocks, and a fund holds them differently:
| Stock | Benchmark weight | Fund weight | Difference |
|---|---|---|---|
| Reliance | 10% | 6% | −4% |
| HDFC Bank | 8% | 12% | +4% |
| Infosys | 7% | 5% | −2% |
Sum of absolute differences = 4 + 4 + 2 = 10%
$$AS = \frac{1}{2} \times 10\% = 5\%$$
A real fund has 50+ positions, so these differences accumulate. An AS of 70% means 70% of the portfolio reflects genuine active decisions.
| Active Share | Interpretation |
|---|---|
| Below 50% | Closet indexer — paying active fees for near-index returns |
| 50–70% | Moderate active management |
| Above 70% | Genuinely active; worth evaluating further |
Before paying active fees, check the fund's active share. If it is below 50%, the fund cannot generate enough alpha to justify the fee differential. [1]
AS alone does not tell you how a fund is active. You need Tracking Error alongside it: [1]
Apply this → Go to Explore Funds, filter by category, and check active share alongside the 5-year IR) — definition">Information Ratio to identify funds where the active fee is genuinely earned.