Investors gravitate towards index funds, ETFs as equity funds underperform

Fifteen of the 16 debt categories have beaten diversified equity funds over a three-year period, data shows

Diversified equity funds have underperformed several debt categories in the past three-, five- and 10-year periods, uncharacteristic for an asset class that is expected to outperform over longer timeframes. 

The polarisation of Indian equities since 2018, something which has become more acute in the past year, has affected the performance of equity funds, particularly large-cap ones.

The crash in mid- and small-cap stocks in 2018 hit returns of funds that invest predominantly in these stocks. Several debt categories, on the other hand, have benefited from the fall in interest rates over the past few years.

Bond prices vary inversely with rates of interest.