Equity MFs underperforming benchmarks: Study 

A majority of actively managed equity mutual funds have underperformed their respective benchmark indices in the past five years, a study by S&P Dow Jones Indices in association with Crisil has shown.

While the ‘survivorship’ was the lowest it terms of diversified equity funds across categories and time, the balanced funds, hybrid funds, gilt funds and debt funds had a 100 per cent survivorship in the last one year, the study has shown.

In a joint press release, Crisil–S&P DJI said the latest S&P Indices Versus Active Funds (SPIVA) scorecard, made by S&P Dow Jones Indices in partnership with Crisil, revealed that the ‘majority of actively managed’ equity mutual funds had underperformed their respective benchmark indices over the past five years ending June 2012.

While the percentage of funds had shown a declining trend since December 2010, the number of underperformers exceeded the outperformers. A majority of the large cap equity funds ‘failed to beat the S&P CNX Nifty’, which was the benchmark index for large-cap companies listed on the NSE.

The number of underperforming funds had been relatively constant over a one-, three- and five-year period. This was important because the funds need a reasonable time and different market cycles to be judged.

The study showed that 53.33 per cent of the funds underperformed their benchmark over the past five years. This was slightly higher at 57.14 per cent over a three-year period and in the last one year, this was 52.63 per cent.

In case of diversified funds, over 53.10 per cent of them outperformed the benchmark S&P CNX 500 in the first year ending June 2012. This was higher at 61.6 per cent over a three-year period, but fell to 49.5 per cent over five years. 

In case of ELSS (Equity Savings Linked Scheme) schemes too, a similar trend of better performance during a shorter period compared to a longer tenure was noticed. While the percentage of funds outperforming the benchmark in over one and three years was ‘stable’ at around 70 per cent, this dived sharply to 44.83 per cent over the five-year period.

Simon Karaban, Director at S&P Indices, said the underperformance of actively managed funds in comparison to the benchmarks over the past five years “demonstrates once again the difficulty for fund managers to consistently outperform the benchmark”.

The report showed that equity funds in India continue to record losses during the year with the asset-weighted large cap funds being down by close to 5 per cent whereas their equal-weighted equivalents were down 6 per cent.

Their benchmark S&P/CNX Nifty fell by close to 5 per cent in the year ending June 2012. The equity-oriented hybrid funds also trailed their benchmarks over a one and five-year period.

But what was surprising was the performance of actively managed debt-oriented hybrid funds or Monthly Income Plans (MIPs) which outsmarted the benchmark CRISIL MIP Blended Fund Index over three and five years. For the year ending June 2012, a majority of gilt and balanced funds underperformed, whereas the majority of debt, ELSS and diversified funds were able to beat their benchmarks.

According to Jiju Vidyadharan, Director, Funds & Fixed Income Research, CRISIL Research, the mutual fund industry has recently been undergoing ‘multiple changes given various regulatory announcements’, apart from a rather lacklustre capital market and funds were in a ‘consolidation phase’. The ‘survivorship’ was the lowest in respect of diversified equity funds ‘across categories and time’.

But in case of balanced funds, hybrid funds, gilt funds and debt funds, it was 100 per cent survivorship in the one-year period.

The study has shown that asset-weighted large cap equity funds have given a return of 5.86 per cent over the past five years compared to 4.61 per cent for their equal weighted equivalents. This showed that the ‘funds with better performance over longer time frames had larger assets under management (AUM)’.

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