Majority of large cap and diversified equity funds underperformed their benchmark indices; in contrast, majority of long-term debt funds outperformed their benchmark across all three periods of analysis
According to the latest Standard & Poor’s Index versus Active Funds (SPIVA) scorecard, majority of large cap and diversified equity funds underperformed their benchmark indices i.e. the Nifty and the S&P CNX 500 respectively, across three periods of analysis (1, 3 and 5 years). Higher proportion of large cap equity funds underperformed their benchmark vis-à-vis the diversified category. Diversified funds said to offer a greater probability of generating excess returns as they have a wider choice than large cap funds.
Speaking on the underperformance, Tarun Bhatia, Director - Capital markets, Crisil Research, said “In recent years, the higher volatility associated with equities compared to bonds has not been rewarded with higher returns for the majority of these funds”.
In the case of equity-linked saving schemes (ELSS), majority of funds have underperformed the benchmark S&P CNX 500 over the three and five year time frames whereas in the hybrid category, majority of the equity-oriented balanced funds underperformed the benchmark (CRISIL BalanCEX) across all time frames. In contrast, majority of the debt-oriented monthly income plans (MIPs) outperformed the benchmark (CRISIL MIPEX) across all time frames. Clearly, MIPs with relatively lower exposure to equities generated adequate returns vis-à-vis balanced funds.
Among pure debt funds, most of the gilt funds which mainly invest in sovereign-guaranteed securities underperformed their benchmark (CRISIL Gilt Index) in the three and five year time frame. These funds are largely based on duration calls taken by the fund manager, based on their interest rate views but these funds are likely to outperform if its average maturity falls in a rising interest rate scenario.
On the other hand, majority of long-term debt funds which invest mainly in corporate debt outperformed their benchmark (CRISIL CompBEX) across all three time frames led largely by active duration calls in a volatile interest rate environment.
Simon Karaban, Director, S&P Indices Asia Pacific Research, said active managers of Indian fixed income funds have performed better than their US counterparts. He further said “However, with the exception of emerging market debt, more than 50% of US active managers failed to beat benchmarks in all fixed income categories”.
