Actively managed equity MFs underperform benchmark: S&P

Written by fe Bureau | Mumbai | Updated: Feb 29 2012, 05:34am hrs
The majority of actively managed Indian equity mutual funds have underperformed their respective benchmark indices over the last five years, but outperformed the indices over the 12 months ended December 2011, according to the latest Standard & Poors Index Versus Active Funds (SPIVA) scorecard.

The scorecard, prepared by S&P Indices in partnership with Crisil, reveals that 53% of large cap equity funds failed to beat the S&P CNX Nifty, the leading benchmark index for large cap companies listed on NSE, over the five years ending December 2011.

Taking 2011 in isolation, however, active managers fared better, with 65% large-

cap equity funds producing higher returns than the S&P CNX Nifty.

A similar pattern was seen for diversified equity funds, which offer a wider choice of stocks than large caps and therefore a greater chance of generating excess returns. About 58% underperformed their benchmark, the S&P CNX 500, over the past five years. In 2011 alone, however, 54% of diversified equity funds beat

the index.

Active managers of equity linked saving schemes (ELSS) and balanced funds (equity oriented hybrid funds) have also fallen behind benchmarks over the past five years.

In contrast, the majority of active managers of monthly income plans or MIPs (debt oriented hybrid funds), gilt and debt funds (which invest mainly in corporate debt) have outperformed their benchmarks over a five year period.

In 2011, majority of balanced and MIP funds underperformed, while majority of ELSS, gilt and debt funds beat their benchmarks.

The SPIVA scorecard for India also revealed that asset-weighted returns were higher than equal-weighted returns for all fund categories apart from gilts over the past

five years.

Asset-weighted large cap equity funds have returned 4.72% over the past five years compared to 3.41% for their equal-weighted equivalents. This indicates that funds with larger assets under management performed better than smaller funds.