60% of mutual fund schemes outclass benchmarks

Sneha Padiyath Mumbai | Updated on January 14, 2013

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45 out of 58 mid-, small-cap category funds score over indices

About 60 per cent of the equity mutual fund schemes managed to beat their benchmark indices in the last one year.

Two hundred and twenty one out of the 344 equity mutual fund schemes under consideration in this report had beaten their benchmarks. Of these, about 97 (46 per cent) had beaten their benchmarks by more than five per cent.

According to data sourced from Value Research, an online mutual fund tracker, the MF schemes have beaten the benchmarks by as little as 0.07 per cent and as high as 28.02 per cent.

This report takes into consideration of those equity funds which are benchmarked to Indian stock exchange-listed indices and excludes those which are benchmarked to indices customised by fund houses and those benchmarked to international indices.

SBI Magnum tops

In terms of beating their benchmarks, funds in the mid- and small-cap category performed the best. SBI Magnum Emerging Business was the best performer, beating its benchmark — BSE 500 — by 28.02 percentage points.

SBI Magnum was followed by Escorts Leading Sectors, Reliance Equity Opportunities Inst, Reliance Equity Opportunities and HSBC Progressive Themes, forming the five top performers in the mid and small-cap funds category.

The large-cap category saw fewer funds beating their benchmark. Reliance Top 200 Retail beat its benchmark, BSE-200, by 8.9 percentage points, followed by Motilal Oswal MOSt Shares M50 ETF, ICICI Prudential Top 200 Inst I, UTI Master Plus ‘91 and ICICI Prudential Top 100 Inst I.

Good management

Fund analysts said beating the large-cap benchmark by 3-5 percentage points was an indication of good management. Going by that criterion, only 11 of the 78 large-cap funds beat their benchmark by more than three percentage points.

Those in the large- and mid-cap category fared better with 26 of the 69 funds beating their benchmark by more than 3 percentage points. In the mid- and small-cap category, 45 of the 58 funds beat their benchmarks.

Analysts said that in case of mid- and small-cap funds, fund managers prefer to construct portfolios based on stock-picking and try not to mirror the benchmark indices.

“The returns of the mid-cap and small-cap indices are volatile as they might contain stocks which are not widely held or which may have disproportionate weightage in the indices. This is not the case with large-cap indices which makes them more reliable,” said a fund manager with a mid-sized fund house. The same holds true for funds in the thematic and sectoral funds category.

For instance, SBI has a 50 per cent weightage in the CNX PSU Bank Index, which skews the comparison against the fund.

Scepticism continues

This relative outperformance by a large number of funds, however, has not translated into higher inflows for the fund houses. In fact, redemptions by retail investors continued to haunt the industry.

Though the markets rallied towards the end of calendar 2012, redemptions by retail investors in mutual funds continued due to scepticism about the sustainability of the rally.

“The pace of redemptions has tapered off but we are still not receiving inflows on a net basis. Retail investors have still not turned bullish on equity else we would have seen an increase in inflows,” said the head of equities of a bank-promoted fund house.

According to data from the SEBI and AMFI Web sites, between September and December 2012, the number of retail folios has fallen by 4.4 per cent to 3.4 crore. The total number of folios decline 3 per cent to 4.3 crore from 4.4 crore during the same period.


Published on January 14, 2013

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