• Investment World
• eWorld
• Brand Line
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest
• The New Manager

Stocks

• Quotes
• SE Diary
• Scoreboard
• Open-End Mutual Fund

Cross Currency

• Rates
  
  

Shipping

• Ports
  
  

Archives

• Yesterday
• Datewise
• Resources
• In Focus
• In Depth

Group Sites

• The Hindu
• The Hindu ePaper
• Business Line
• Business Line ePaper
• Sportstar
• Frontline
• The Hindu eBooks
• The Hindu Images

Aarati Krishnan
Shanthi Venkataraman

Equity mutual funds, which have breezed past benchmarks such the BSE Sensex over the past four years, struggled to keep pace with the index in 2006. On an average, equity funds with a well-diversified portfolio, delivered a return of 34 per cent to their investors in 2006, that is well below the 47 per cent gain managed by the Sensex. Only a fifth of the diversified equity funds managed better performance than the BSE Sensex in the just-concluded year.

This marks a significant break from the past. In the Indian context, actively managed funds have comfortably trounced the Sensex, especially during the bull phases. Two-thirds of the equity funds in operation managed to outpace the Sensex in 2005, while nine out of ten funds managed this feat in each of the three years preceding 2005. "Active" fund managers have stayed several paces ahead of the benchmarks over the past few years by investing outside the index stocks and packing their portfolios with mid-cap stocks to boost returns. But such a strategy has not worked this time around as mid-cap stocks have languished. The BSE Midcap index generated a return of only 32 per cent against a Sensex return of 47 per cent in 2006. Even within the index portfolio only a small set of stocks such as Reliance Industries, Infosys, ICICI Bank and Reliance Communication have contributed the bulk of returns.

Some sections of the fund industry believe that it will be increasingly difficult to beat the benchmark indices as funds multiply in number and manage a larger asset base. The number of equity funds available on tap has increased over the years from about 50 in 2002 to over 150 in 2006. Fund managers feel that with more money chasing stock ideas, there may be fewer opportunities for unearthing out-performers. However, others maintain that the trend of equity funds underperfoming the Sensex in 2006 could have been an aberration. As valuations of mid-cap stocks are now at a significant discount to the bellwethers, they believe that exposures to mid-cap stocks may yet pay off over the long-term.

More Stories on : Mutual Funds | Stock Markets

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Hopes of record wheat harvest

Copyright © 2007, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line