I just came across your article, and honestly, I feel you have done a lot of math — but in a wrong way to arrive at your final judgement.
Normally, LC funds will predominantly be holding NIFTY stocks — probably 60–80% (some cases even 100%). The rest can be can be termed the NIFTY Junior universe.
Hence, I feel the analysis would have given an accurate picture if you took benchmark as 60 to 80% NIFTY and 40 to 20% NIFTY Junior and showed all the different probable returns.
That would have given the RIGHT picture — and my hunch is that the MFs would have won hands down.
The multiple theories you have come with to justify your point is incorrect from the start.