Active India funds underperform index, S&P data shows

The majority of actively managed Indian equity mutual funds have underperformed their respective benchmark indices over the last five years, according to the latest Standard & Poor’s Index Versus Active Funds (SPIVA) scorecard.

The result, produced by S&P Indices in partnership with CRISIL, reveals that 53% 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 five years ending December 2011.

Conversely, active managers fared better over the latest discrete 12-month period, with 65% large cap equity funds producing higher returns than the S&P CNX Nifty through 2011.

A similar pattern was seen for diversified equity funds, which offer a wider choice of stocks than large caps and therefore, theoretically, a greater chance of generating excess returns. About 58% underperformed their benchmark, the S&P CNX 500, over the past five years. In 2011 alone, however, 54% of diversified equity funds beat the index.

Active managers of Equity Linked Saving Schemes and balanced funds (ELSS’s, equity oriented hybrid funds) also fell behind benchmarks over the past five years.

In contrast, the majority of active managers of Monthly Income Plans (or MIPs, debt oriented hybrid funds), gilt and debt funds outperformed their benchmarks over a five year period. In 2011, most balanced and MIP funds underperformed, while majority of ELSS, gilt and debt funds beat their benchmarks.

Simon Karaban, director at S&P Indices said the result highlights the difficulty of picking consistently successful stocks in volatile market conditions.”Although they reversed this trend in 2011 and beat their benchmarks as global stock markets tumbled, Indian equity funds still recorded heavy losses during the year.”

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