Equity MFs underperform benchmark in last one year

Suresh P Iyengar Mumbai | Updated on March 25, 2021

But most funds across category bounce back sharply

Notwithstanding the tremendous bounce back of equity markets from the Covid-19 led impact, most mutual fund equity schemes have underperformed their benchmark indices.

For instance, 97 per cent of the large cap funds have underperformed their benchmark indices though they have delivered an average return of 59.62 per cent between February 2020 and March 22, 2021 (Covid-induced bear market). Similarly, 91.3 per cent of the small-cap funds and 88.3 per cent of multi-cap funds have under-performed their benchmarks. On an average, these funds have delivered a return of 91.52 per cent and 64.10 per cent respectively.

The performance of other category funds such as large-, mid- and Equity Linked Savings Schemes have also under-delivered vis-a-vis their benchmarks.

Gaurav Misra, co-Head-Equity at Mirae Asset Investment Managers India said there was a bit of a dislocation in the short term as strong foreign institutional investors (FII) inflows have been the key determinant in the market. However, over the medium-term, businesses will get sifted on fundamentals of growth and quality of growth and proper stock selection will determine outcomes, he said.

Though mutual funds have seen a heavy outflow across equity schemes on profit-booking in the last few months, fund flows into equity schemes have kept pace in the second half of last year except during the lockdown and truncated economic activity in the months between March and May, said a CEO of a top mutual fund house.

‘Stock picking skills tested’

Melvyn Santarita, Research Analyst at Morningstar India, said last summer, the rally in the index was led by a few stocks like Reliance Industries but mutual funds were barred by regulations from investing over 10 per cent of their assets in a single stock. Historically, actively managed funds have always underperformed in bull markets, he added.

Stock picking skills of fund managers will continue to be tested even in the current marketconditions as it is driven by excess liquidity unleashed by central banks across the globe to salvage Covid-hit economies, rather than being guided by fundamentals, said an analyst.

George Joseph, CEO and Chief Investment Officer, ITI Mutual Fund, said the outperformance of mid- and small-cap segment has just started after a gap of three years of underperformance compared to large caps. “We believe this outperformance is going to stay for next 4-5 years and all the funds skewed towards mid- and small-cap segment will do very well,” he added

Published on March 25, 2021

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