Actively managed funds lag benchmarks: Study

Our Bureau Mumbai | Updated on February 22, 2011 Published on February 22, 2011


The majority of actively managed Indian mutual fund schemes are underperforming their benchmarks, according to report by CRISIL and Standard and Poor's.

According to the S&P Index Versus Active Funds (SPIVA) scorecard, a majority of the large-cap equity funds have underperformed the Nifty, which is the leading benchmark index for large-cap companies listed on the NSE.

They underperformed for the one-year, three-year, and five-year periods. The underperformance was maximum in the last one year, where 77 per cent of these funds gave returns lower than their benchmark index.

“Larger funds, however, have performed better relative to smaller funds across all fund categories over longer time frames, as asset-weighted returns have generally exceeded equal-weighted returns,” said the report.

An equal weighted index is where every stock in the index has the same weight, regardless of the company size, while an asset-weight is calculated using values that have been weighted to the size of assets managed.

“Over half of the diversified equity funds underperformed the S&P CNX/500 benchmark over three- and five-year timeframes. If you also consider that approximately 78 per cent of funds in equity linked saving schemes (ELSS) failed to beat the benchmark over a five-year period, this highlights the difficulty in picking consistently successful stocks,” said Mr Tarun Bhatia, Director Capital Markets at CRISIL.

The benchmark indices also outperformed most of the fixed income funds in the last one year, outpacing approximately 87 per cent of the funds in the gilts category, despite the category exceeding the benchmark performance over the three year period, said the report.

In the Balanced and MIP categories (Hybrid funds), asset-weighted returns were greater than equal-weighted and benchmark returns across the one, three and five-year time periods, indicating that larger funds are better performing in these categories.

“SPIVA scorecards across the US, Canada and Australia have shown similar results to that of India. There is a striking resemblance to other well established markets in the degree to which actively managed funds have under performed over a five-year time horizon, particular in relation to domestic equities,” said Mr Simon Karaban, Director of S&P Indices Asia Pacific Research.

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Published on February 22, 2011
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