Five years on, majority of actively managed funds perform below benchmark: report

A majority of actively managed Indian mutual funds have underperformed their respective benchmarks over the past five years, according to the latest Standard & Poor’s Index Versus Active Funds (SPIVA) scorecard, produced in partnership with CRISIL.

The scorecard reveals that 65 per cent of large cap equity funds failed to beat the S&P/CNX Nifty, the leading benchmark index for large cap companies listed on the National Stock Exchange over the five years ending June 2011. This under performance has continued into the latest 12-month period, with 60.61 per cent of large cap equity funds producing lower returns.

Diversified equity funds, which offer a wider choice of stocks than large caps and therefore a greater chance of generating excess returns, also underperformed their benchmark but to a lesser degree. Some 55.71 per cent of diversified equity funds were beaten by the S&P/CNX 500 over the past five years. Taking the latest one-year period in isolation, 53.62 per cent of diversified equity funds underperformed.

This picture of under performance by active managers of equity funds in India is one which we have seen replicated in other well-established markets, including the US. Active managers of Indian fixed income funds have performed better than their US counterparts, however; with the exception of emerging market debt, more than 50 per cent of US active managers failed to beat benchmarks in all fixed income categories”, said Simon Karaban, Director of S&P Indices Asia Pacific Research.

Active managers of Equity Linked Saving Schemes (ELSS) and gilt funds have also fallen behind benchmarks over the past five years. In contrast, the majority of active managers of MIP (hybrid) and debt funds (which invest mainly in corporate debt) have outperformed their benchmarks. For balanced funds, half have outperformed their benchmark while half have underperformed.

It highlights the challenges faced by active fund managers picking well-performing stocks in volatile market conditions. In recent years, the higher volatility associated with equities compared to bonds has not been rewarded with higher returns for the majority of these funds”, said Tarun Bhatia, director, Capital Markets at CRISIL Research.

The SPIVA scorecard for India also revealed that asset-weighted returns were higher than equal-weighted returns for all fund categories apart from gilts over the past five years.

Asset-weighted large cap equity funds have returned 14.64 per cent over the past five years compared to 13.45 per cent for their equal-weighted equivalents.

This indicates that funds with larger assets under management performed better than smaller funds.

Source: http://www.indianexpress.com/news/five-years-on-majority-of-actively-managed-funds-perform-below-benchmark-report/842838/0