Mutual fund industry executives' mantra to investors to remain invested for a long term to have sizeable returns, to be precise at least three years, seems to have been miserably failed.
Already, the capital markets regulator had raised concerns over consistent underperformance of the mutual fund schemes against their respective benchmarks earlier this year. And now, the latest report from S&P Dow Jones Indices in partership with Crisil under S&P Indices Versus Active Funds (SPIVA) scorecard has only strengthened regulator's concerns.
According to the report, over the last five years ending June, 2012 more than half or 53.33% of the large cap equity funds failed to beat their leading benchmark index S&P CNX Nifty. If last three years are taken into consideration, 57.14% funds underperformed while in the last one year 52.63% of the large cap equity funds could not beat the benchmark.
Simon Karaban, director at S&P Indices, said, “The underperformance of actively managed funds in comparison to the benchmarks over the latest five-year period demonstrates once again the difficulty for fund managers to consistently outperform the benchmark. The SPIVA report indicates that Indian equity funds continue to record losses during the year with the asset-weighted large cap funds being down by close to 5% while their equal-weighted equivalents being down 6%.”
But there is some good news too when it comes to diversified funds. Over 53% of diversified funds outperformed the benchmark S&P CNX 500 in the one year period ending June 2012. Further, this number increased to 61.6% in the 3 year period. But when longer period of five years is taken into accounting the number again dropped below half to 49.5%.
A similar trend is noted for the equity savings linked scheme (ELSS), where the percentage of funds outperforming the benchmark in both the 1 year and 3 year period is stable at about 70% but drops significantly to 44.83% in the 5 year period, said the report.
Jiju Vidyadharan, director, funds & fixed income research, Crisil Research, said, “The mutual fund industry in India over the past few months has been undergoing multiple changes given various regulatory announcements and the rather flat capital markets. Given the environment, the number of new launches has been low and the mutual funds have been in a consolidation phase. Of the different fund categories, the survivorship has been the lowest when it comes to diversified equity funds across categories and time. Whereas balanced funds, hybrid funds, gilt funds and debt funds had a 100% survivorship in the one year period.”
Active managers of equity oriented hybrid funds have also fallen behind benchmarks over both 1 and 5- year time frames. In contrast, the majority of active managers of debt oriented hybrid funds or monthly income plans (MIPs) outperformed the benchmark CRISIL MIP Blended Fund Index over the 3- and 5-year time frames. In the one year period ending June 2012, the majority of gilt and balanced funds underperformed, while the majority of debt, ELSS and diversified funds beat their benchmarks.
