Benchmark indices outperform MFs

Written by fe Bureau | Mumbai | Updated: Apr 30 2010, 14:38pm hrs
A majority of funds have underperformed their benchmark indices, according to the newly launched S&P Crisil S&P Crisil Indices versus Active Fund (SPIVA) scorecard for the Indian mutual fund industry. Barring debt schemes, all the other categories like ELSS, equity and diversified have underperformed the benchmark indices. SPIVA could be a good tool to evaluate performances of active fund managers as over the long term , they are expected to beat their benchmark indices.

Otherwise, investors are better off with low-cost passively managed index funds.

The inaugural report shows that 70% of large cap funds in India underperformed the S&P CNX Nifty Index while 40% of the funds in the diversified equity category underperformed the S&P CNX 500 Index over a 5-year period ended Dec 2009. SPIVA reports are released periodically by S&P in various countries like the United States, Canada and Australia.

Roopa Kudva, Crisil MD & CEO, said: The difference in performance can be explained by the fact that large cap stocks are heavily researched providing fund managers with limited opportunities to generate positive alpha over the benchmark by leveraging information asymmetries. Almost 80% of the ELSS funds under performed during 1-year and 3-year periods with 65% of them failing to beat the benchmark over 5 years.