Active Share measures how different a fund's portfolio is from its benchmark index — a high Active Share (above 60%) means the manager is making bold independent bets; low Active Share indicates a 'closet index fund.'
Active Share = 0.5 × Σ |Fund weight in stock i − Benchmark weight in stock i| across all stocks. It ranges from 0% (identical to the benchmark) to 100% (completely different from the benchmark). A fund with Active Share below 40–50% is considered a 'closet indexer' — charging active management fees but essentially tracking the index. High Active Share (above 60–70%) indicates genuine active management, though it doesn't guarantee outperformance — it just confirms the manager is making independent decisions.
Active Share answers: 'How much is this fund manager actually deviating from the index?' If the Nifty 50 has 8% in HDFC Bank but your fund has only 3%, that's a big active bet. An Active Share of 80% means 80% of the fund's portfolio is different from the index. Active Share of 20% means the fund is nearly identical to the index — the manager is essentially indexing while charging active management fees (a closet index fund).
Calculate: for each stock, take the absolute difference between fund weight and benchmark weight.
Sum all differences and divide by 2.
Active Share of 0% = perfect clone of benchmark.
Active Share of 100% = no overlap with benchmark.
Meaningful active management: Active Share > 60%. Closet indexers: < 40%.
Active Share = ½ × Σ |w(fund,i) − w(benchmark,i)|