Index-based or passively managed equity funds have outperformed actively managed funds in average returns over three months. Even as the benchmark indices have been range-bound, index funds have gained 2.03%.
The IDBI Nifty Junior Index Fund has been the biggest gainer at 4.5%, followed by ICICI Nifty Junior at 4.3% and Goldman Sachs Nifty Junior at 3.9%. According to data from Value Research, the average returns for large-cap funds is 1.25%, diversified funds have raked in about 0.07% and the small- and mid-cap funds have been down 0.09%.
Market experts feel that it is difficult for fund managers to make good calls in a volatile market scenario. ?Fund managers are having a hard time in getting their portfolios right. Apart from this, passive funds tend to do better than the actively managed funds as there is less tracking error. Also, index funds comprise blue chips and large caps, which make them resilient in a turbulent market,? said Kaushik Dani, head (equities), Peerless Mutual Fund.
Incidentally, blue-chip stocks like ITC, HUL and Reliance Industries have touched 52-week highs in the current calendar year. While markets have been beset by a falling rupee and a slowdown in foreign institutional inflows in the current calendar year, index funds along with large-cap funds have been the least-hit categories as both have slipped nearly 5% even as the small- and mid-cap and diversified funds have been depleted by 10%.
According to analysts tracking mutual funds, fund managers have curtailed their exposure to blue chips as they deem these stocks to be expensive.
?Fund managers did not expect these stocks to perform well. However, historically over a longer period, actively managed funds are better bets. This trend is likely to continue as the Indian markets are not as efficient like some of the developed markets. This gives opportunities to the fund manager to beat the index,? said Sachin Jain, research analyst, mutual funds, ICICI Securities.
Over a time-frame of five years, small- and mid-cap funds have generated returns of more than 7%, outperforming index funds which have gained 6.48%. Interestingly, index funds have still edged out their diversified and large-cap counterparts, both of which have delivered returns of 5.80% and 5.98% each.
