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Majority of actively managed Indian mutual funds underperforming benchmark indices, says S&P

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Findings from the latest Standard & Poor’s Index Versus Active Funds (SPIVA) scorecard, produced in partnership with CRISIL, shows that the majority of actively managed Indian mutual funds are underperforming their respective benchmarks over the five-year period ending December 2010.

 

According to the SPIVA scorecard, a preponderance of large cap equity funds failed to beat the S&P/CNX Nifty, the leading benchmark index for large cap companies listed on the National Stock Exchange of India, over the latest 1-, 3- and five-year periods ending December 2010. Particularly glaring was the underperformance over the most recent one-year period, when 77% of large cap-oriented equity funds produced lower returns than their benchmark index.

Larger funds, however, have performed better relative to smaller funds across all fund categories over longer time frames, as asset-weighted returns have generally exceeded equal-weighted returns.

Tarun Bhatia, Director Capital Markets at CRISIL, says: “One of the key findings was that over half of diversified equity funds underperformed the S&P CNX/500 benchmark over three- and five-year time frames. If you also consider that approximately 78% of funds in Equity Linked Saving Schemes (ELSS) failed to beat the benchmark over a five-year period, this highlights the difficulty in picking consistently successful stocks.”

Simon Karaban, Director of S&P Indices Asia Pacific Research, says: “SPIVA scorecards across the US, Canada, and Australia have shown similar results to that of India. There is a striking resemblance to other well-established markets in the degree to which actively managed funds have underperformed over a five-year time horizon, particular in relation to domestic equities.”

Benchmark indices also outperformed actively managed fixed income funds in the last 1-year period, outpacing approximately 87% of funds in the gilts category, despite the category exceeding benchmark performance over the three-year period. In the Balanced and MIP categories (Hybrid funds), asset-weighted returns were greater than equal-weighted and benchmark returns across the one-, three- and five-year time periods, indicating that larger funds are better performing in these categories.

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