Stocks

1/3rd of diversified equity funds beat Sensex in FY-11

Our Bureau Mumbai | Updated on November 13, 2017

equityfund

Six and 3-month period returns turn negative





Investors who put in their money into diversified equity schemes a year back have much to cheer about as a majority of these schemes have seen positive returns. However, only one-third of the schemes were able to beat the benchmark indices.

For six- or three-month period, only a few of these schemes have been able to better the market.

There are a total of 243 schemes in this category, according to data available on the mutualfundsindia.com.

The Sensex in the last 12 months has given returns of around 10 per cent. Of the 243 schemes, 74 have beaten the benchmark with returns in the 11-20 per cent bracket. The BSE-500 has given out a return of 7.5 per cent.

About 126 schemes have outperformed the BSE-500

Tumbled with Sensex

However, post-November, the Sensex fell from its peak of 21,000 to 17,000-levels. With that, these funds also took a tumble, particularly those have exposure to mid- and small-cap segments, as these stocks witnessed sharp fall. As a result, the returns for the six-month and three-month periods turned negative. These funds are technically supposed to be less risky owing to their equity diversification.

Analysts say that the reason for their fall was high concentration of some stocks in their portfolio. “Most of these funds have around 50 per cent of their portfolio focussed on the top 10 stocks of that portfolio. The fund managers do not want to let go of these stocks as they believe that the correction is a temporary one and are very sure of the future of these stocks,” said a mutual fund analyst with an investment advisory firm.

Failed general logic

A diversified equity fund is one which is sector-neutral and often times, even market-capitalisation-neutral. Due to its diversification mandate, in a falling market these funds are supposed to fall less than the market and in a rising market, they are supposed to rise higher than the market.

However, that was not the case observed here. These schemes in the last six-month and three-month period have given lower returns than the Sensex.

All these schemes have given negative returns during the six-month and three-month period.

The six-month period has seen returns in the range of 0.5 to -25 per cent (the Sensex returning -0.39 per cent), while the three-month period has seen -1.6 to -18 per cent returns (the Sensex giving a +six per cent return).

However, fund mangers say that the performance of the funds should not be gauged for such short time frames, and that mutual funds as a category should be considered to be long-term investments.

Published on March 31, 2011

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