Most large-cap equity mutual funds underperform benchmark indices; check 5-yr, 1-yr performance

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Published: April 8, 2020 4:35:30 PM

While the S&P BSE 100 index surged 37.92% in the five years ending December 2019, the story for Indian equity large cap funds has not been the same.

In the calendar year 2019, when the S&P BSE 100 surged almost 11%, two-fifths (40%) of the large-cap equity funds failed to mirror the trend and fell short of the jump registered by the index.

While the S&P BSE 100 index surged 37.92% in the five years ending December 2019, the story for Indian equity large cap funds has not been the same. According to a S&P Indices Versus Active (SPIVA) scorecard, 82.29% of the large cap equity funds have underperformed the index in the same time period. In the calendar year 2019, when the S&P BSE 100 surged almost 11%, two-fifths (40%) of the large-cap equity funds failed to mirror the trend and fell short of the jump registered by the index.

The trend could also be seen among equity linked savings schemes (ELSS), government bonds as well as composite bonds. While 78.38% of the Indian ELSS funds underperformed the S&P BSE 200 in the five year ending December 2019, the number was as high as 88.37% when analysed over a three year period. The S&P BSE India Government Bond Index, having given healthy returns to investors over the 5 year period ending December 2019, saw 84.91% of the funds underperform it. The number goes higher if S&P BSE Bond Index is compared with composite bonds in India, with 97.78% of the funds underperforming the index.

“Over longer horizons, majority of the actively managed large-cap equity funds in India underperformed the S&P BSE 100 with 64.80% large-cap funds underperforming over the 10-year ending in December 2019. During this period the large-cap funds witnessed a low survivorship rate of 68.80%,” said Akash Jain, Associate Director, Global Research & Design, S&P Dow Jones Indices. 

Among all the categories evaluated by SPIVA scorecard, the best performance was mapped by midcap and smallcap category. Majority of the actively managed funds outperformed the S&P BSE 400 MidSmallCap Index. In the five year time frame, only 40% of the Mid and small cap equity funds underperformed the index. In the one year ending December 2019, the number drops down to just 27%.

The asset-weighted return for large-cap equity funds was 36 basis points higher than the equal-weighted return over the 10-year period, said SPIVA in a press release. For the same 10-year period, in the Mid/Small Cap equity funds category, the asset-weighted fund return was 26 bps lower than the equal-weighted fund return.

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