Popular equity schemes fail to beat bank RD returns

Returns by several most-preferred equity mutual fund schemes could not keep pace with what the humble recurring deposit offered investors

Returns generated by several popular equity mutual fund schemes have failed to beat the returns of recurring deposits (RDs) offered by banks in the past two years.

An investment initiated in a bank’s RD with a monthly instalment of Rs 1,000 in May 2014, earning interest of 8.75 per cent (then), would have turned into Rs 27,400 in May 2016, an absolute gain of 9.6 per cent on a total deposit of Rs 25,000.

During the same period, if an investor had started Rs 1,000 through a systematic investment plan (SIP), the value of the accumulated corpus (Rs 25,000) hovers between Rs 24,750 and Rs 27,800. Among the 15 most invested equity schemes, hardly a few have managed to better the returns of RDs.

This is despite the Indian markets scaling a record high in these two years. The benchmark Sensex had climbed to 30,000 in January 2015 but then saw a sharp correction, denting the returns of equity MFs.

The top 15 most invested equity schemes by investors, with assets under management (AUM) of Rs 1.31 lakh crore, account for nearly a third of the overall equity AUM. On an average, these schemes had turned an investor's cumulative investment of Rs 25,000 into Rs 26,332, an average return of 5.32 per cent. The Sensex rose 6.67 per cent in this period.

Bank RDs are not strictly comparable to equity schemes as the former is risk-free and the latter invests in risky assets. Also, a period of two years is too short to judge the performances of equity schemes. Nevertheless, it is interesting to see how these two investment instruments, preferred by small investors, have fared since the new government took charge.

HDFC Equity, the country's largest equity scheme, turned a cumulative sum of Rs 25,000 through SIP from May 26, 2014, to May 26, 2016, into Rs 24,753, an absolute loss of nearly one per cent. Reliance Equity Opportunities made an absolute loss of about 1.75 per cent, as the value of investment stood at Rs 24,563. HDFC Top 200 Fund kept the same corpus flat at Rs 25,016.

Large schemes that have done relatively better are SBI Bluechip with an absolute return of 11 per cent, turning the collective sum of Rs 25,000 through SIPs into Rs 27,766. Franklin India Prima Plus and HDFC Mid-Cap Opportunities offered 10.5 per cent and 10.75 per cent, respectively, in absolute terms as on May 26, 2016. Reasonable returns, as the Sensex hasn’t moved much over two years.