Mumbai, Aug. 30 Those who hold that three to five years is an apt period of time to judge mutual fund returns could do well to take a look at the three-year returns of Indian mutual fund schemes at this point in time.
More than 65 per cent of the diversified equity schemes have underperformed their benchmark indices over the three years ended August 25, a compilation of annualised returns for the period by Value Research shows.
Around 30 per cent of these schemes have recorded returns that exceed their benchmark indices. The data for the rest were not available.
More than 65 per cent of the diversified equity schemes have underperformed their benchmark indices over the three years ended August 25, a compilation of annualised returns for the period by Value Research shows.
Around 30 per cent of these schemes have recorded returns that exceed their benchmark indices. The data for the rest were not available.
Benchmark track
While the benchmark index of a scheme is a parameter against which fund houses measure the performance of their schemes, there is no mandate on the fund houses to deliver benchmark returns, said a mutual fund analyst.
However, the benchmark is important as it helps you track the return of a fund, said Mr. Apoorva Shah, Fund Manager, DSP Merrill Lynch, most of whose equity diversified schemes have outperformed their indices for the period.
“Also it should be a fund manager’s endeavour to beat the benchmark, otherwise the investor should put his money in benchmark stocks or an index fund, which will cost less too.”
According to analysts, one of the reasons for the schemes’ underperformance is that a major portion of their portfolios consists of mid-caps, which have suffered badly in the past year.
“The schemes do not have a hundred per cent linkage to their benchmark indices, which is one of the reasons they lag behind,” said Mr Vineet Potnis, Chief Marketing Officer, DBS Chola Mutual Fund, most of whose schemes have underperformed their indices.
“The portfolios of the mid-cap funds had to be changed as the market cap of mid-cap stocks kept on changing, and that was one of the reasons we missed out on opportunities,” he added.
Among the fund houses that had several of their schemes underperforming their indices are Birla Sun Life Mutual Fund, UTI Mutual Fund, ING Mutual Fund, Tata Mutual Fund, DBS Chola Mutual Fund and Kotak Mutual Fund.
While the benchmark index of a scheme is a parameter against which fund houses measure the performance of their schemes, there is no mandate on the fund houses to deliver benchmark returns, said a mutual fund analyst.
However, the benchmark is important as it helps you track the return of a fund, said Mr. Apoorva Shah, Fund Manager, DSP Merrill Lynch, most of whose equity diversified schemes have outperformed their indices for the period.
“Also it should be a fund manager’s endeavour to beat the benchmark, otherwise the investor should put his money in benchmark stocks or an index fund, which will cost less too.”
According to analysts, one of the reasons for the schemes’ underperformance is that a major portion of their portfolios consists of mid-caps, which have suffered badly in the past year.
“The schemes do not have a hundred per cent linkage to their benchmark indices, which is one of the reasons they lag behind,” said Mr Vineet Potnis, Chief Marketing Officer, DBS Chola Mutual Fund, most of whose schemes have underperformed their indices.
“The portfolios of the mid-cap funds had to be changed as the market cap of mid-cap stocks kept on changing, and that was one of the reasons we missed out on opportunities,” he added.
Among the fund houses that had several of their schemes underperforming their indices are Birla Sun Life Mutual Fund, UTI Mutual Fund, ING Mutual Fund, Tata Mutual Fund, DBS Chola Mutual Fund and Kotak Mutual Fund.
The laggards
Among the schemes that showed the widest margins of underperformance against their benchmarks were DBS Chola Global Advantage, JM Emerging Leaders, Franklin India Prima, Birla Sun Life Dividend Yield Plus, Birla Sun Life India Opportunities, Canara Robeco Emerging Equities, DBS Chola Multi Cap, Kotak MNC, LICMF Growth, Magnum Emerging Businesses, Principal Dividend Yield, Principal Junior Cap, Tata Midcap, Taurus Discovery Stock and UTI Mid Cap.
If the fund manager gets changed, then too the performance of the fund gets affected, said a fund manager with a top mutual fund house.
While in the US markets, the funds invest in “gigantic large caps” and it is difficult for them to outperform those stocks, in India there is scope for bettering the benchmark, provided the fund managers have the expertise, said another fund manager.
“Ideally 3-5 years is the appropriate time period for a mutual fund investor to view the appreciation in his investments,” said Ms Mallika Baheti, mutual fund analyst, Sharekhan Ltd.
Among the schemes that showed the widest margins of underperformance against their benchmarks were DBS Chola Global Advantage, JM Emerging Leaders, Franklin India Prima, Birla Sun Life Dividend Yield Plus, Birla Sun Life India Opportunities, Canara Robeco Emerging Equities, DBS Chola Multi Cap, Kotak MNC, LICMF Growth, Magnum Emerging Businesses, Principal Dividend Yield, Principal Junior Cap, Tata Midcap, Taurus Discovery Stock and UTI Mid Cap.
If the fund manager gets changed, then too the performance of the fund gets affected, said a fund manager with a top mutual fund house.
While in the US markets, the funds invest in “gigantic large caps” and it is difficult for them to outperform those stocks, in India there is scope for bettering the benchmark, provided the fund managers have the expertise, said another fund manager.
“Ideally 3-5 years is the appropriate time period for a mutual fund investor to view the appreciation in his investments,” said Ms Mallika Baheti, mutual fund analyst, Sharekhan Ltd.
For the lay person, however, investing in mutual funds is still easier and simpler compared with investing directly in equity, she added.
Source: http://www.thehindubusinessline.com/2008/08/31/stories/2008083151260100.htm
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