India’s mutual fund industry is in trouble, and much of the reason is its own underperformance. They struggle to beat the markets — meaning that investors would do better to invest in cheaper, index funds than in managed mutual funds. As Table 1 shows, several large fund houses have completely failed to beat the market benchmarks; several of these have all of their schemes doing worse than their chosen benchmarks. Even among the best-performing funds, listed in Table 2, the returns are not spectacularly above the Sensex.
More worryingly, many of the best equity funds have not beaten debt funds over a medium-term period. And, they have both been comprehensively beaten over several different periods by alternative destinations for liquidity, shown in Table 3. Over a three-year horizon, not one has done as well as the Dow Jones Industrial Average; India government-securities seem to be giving better returns than managed debt funds; and both the real exchange market, summarised by the RESSEX index, and gold and silver, have outperformed mutual funds easily. However, as Table 4 suggests, there are some more focused mutual funds that could have done better — pharma and FMCG-category funds, for example.
Table 5 lists the best- and worst-performing mutual funds by percentage changes in assets under management over the year till March 2012. Sahara and Daiwa put in excellent performances; LIC-Nomura and BOI-AXA did particularly poorly. Reliance Mutual Fund also did poorly, worrying, given that it has assets under management that dwarf most of the others.(Click here for table)
Unsurprisingly, therefore, there has been a flight of individuals from mutual funds. Table 6 spells out the concerns for the mutual fund industry. Folios are falling for equity funds, and even for funds that claim to “balance” debt and equity.