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A CURSORY look at the performance of balanced funds and income funds will tell you that almost all of them have outperformed their respective benchmarks. However, the benchmarks do not seem to be proving useful.

Sample this. Alliance 95 generated returns of around 3.3 per cent. HDFC Balanced Fund generated returns of around 6.03 per cent. Both beat the benchmark — Crisil Balanced Fund Index, which gained 3.1 per cent.

In the case of Income funds, Alliance Income Fund generated returns of 5.9 per cent while HDFC Income Fund returned 7.1 per cent. Both, again, outperformed their benchmark, Crisil Composite Bond Fund Index, which gained 5.2 per cent. In short, the benchmarks are proving too easy a hurdle to overcome for the asset management companies.

Some time back, the Association of Mutual Funds of India and Crisil embarked on the practice of calculating the values of the various indices after adjusting for management expenses and cash proportion. Theoretically, if index values are adjusted for management expenses and cash proportion, then it should be a comparatively easier index to beat. The disclosures of half-yearly financial results only confirm that perception.

In particular, the extent of outperformance of the income funds is disconcerting. World over, beating bond indices has proved a tough exercise. In India, however, funds have outperformed their benchmarks by 18-36 per cent.

In addition, the disclosures themselves are causing confusion. The performance of the benchmark — Crisil Composite Bond Fund Index — is given as 2.78 per cent in DSP Merrill Lynch's disclosures. However, most other asset management companies suggest it is 5.2 per cent.

Similarly, Alliance has indicated that Crisil MIP Blended Index delivered returns of about 6.9 per cent. This is in contrast to the 4.7 per cent indicated by Birla and 4.8 per cent by SBI.

In the end, peer comparison continues to be more useful for evaluating performance than the benchmarks themselves. Something for SEBI and AMFI to ponder.

Suresh Krishnamurthy

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