Majority of actively managed mutual funds in India have underperformed their respective benchmarks over the last five years, according to Standard & Poor’s Index Versus Active Funds (SPIVA) scorecard, produced in partnership with Crisil.
Tarun Bhatia, Director, Capital Markets, Crisil Research said, “The latest SPIVA scorecard for India highlights the challenges faced by active fund managers picking well-performing stocks in volatile market conditions. The majority of funds with a high equity component underperformed their benchmark, while most funds with a lower equity component, including MIP and debt funds, outperformed theirs. 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.”
The scorecard reveals that 65% of large cap equity funds failed to beat the Nifty, over five years ending June 2011. This underperformance has continued into the last 12-month period, with 60.61% of large cap equity funds producing lower returns.
Equity diversified funds, which offer a wider choice of stocks than large caps, also underperformed their benchmark but to a lesser degree. The S&P/CNX 500 beat 55.71% of diversified equity funds over the past five years. Taking the latest one-year period in isolation, 53.62% of diversified equity funds underperformed.
Equity-linked saving schemes (ELSS) and gilt funds have also fallen behind benchmarks in the same period. In contrast, the majority of active managers of monthly income plans (MIP, hybrid) and debt funds (which invest in corporate debt) have outperformed their benchmarks. For balanced funds, half have outperformed their benchmark.
Simon Karaban, Director of S&P Indices Asia Pacific Research said, “This picture of underperformance 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% of US active managers failed to beat benchmarks in all fixed income categories.”
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% over the past five years compared to 13.45% for their equal-weighted equivalents. This indicates that funds with larger assets under management performed better than smaller funds.
| Fund category |
Benchmark index | Returns (%) | ||
|
1-year |
3-year |
5-year | ||
| Large Cap | S&P CNX Nifty | 60.61 |
60 | 65 |
| Diversified | S&P CNX 500 Equity Index | 53.62 | 51.28 | 55.71 |
| ELSS | S&P CNX 500 Equity Index | 37.84 | 56.67 | 65.38 |
| Balanced | CRISIL BalanCEX | 60 | 51.61 | 50 |
| MIP | CRISIL MIPEX | 49.06 | 46.94 | 44.68 |
| Gilt | CRISIL Gilt Index | 41.18 | 64.52 | 53.13 |
| Debt | CRISIL CompBEX | 28 | 46.67 | 41.46 |
