Largecap mutual fund schemes struggle to beat their benchmark over long-term

Largecap mutual fund schemes struggle to beat their benchmark over long-term

MUMBAI: The Indian mutual fund industry’s track record of generating healthy returns for their clients is unimpressive to say the least, raising further doubts about an investment instrument that has revolutionized financial investing for Indian households.

Over a five-year period ending in June 2021, four out of five largecap schemes failed to even match their benchmark, BSE100, in terms of returns, the latest S&P Dow Jones Indices SPIVA report showed.

In the case of midcap and smallcap schemes, two out of every three schemes were unable to beat the benchmark
BSE 400 MidSmallCap index, the report showed.

Over a one-year period, however, the dreadful performance of largecap schemes worsened as 86 per cent of them were seen underperforming the BSE100 index. Midcap and smallcap schemes fared better on a one-year time horizon as nearly 43 per cent of the schemes were able to outperform their benchmark.

The consistent underperformance of large swathes of the Indian mutual fund industry along with perception of high management fee have been one of the most prominent catalysts for the rise of direct equity investing in India.

Over the past 18 months, Indian stock broking companies have opened nearly 1 million new demat accounts every month as a wave of first-time investors are joining the ongoing bull market. At the same time, equity mutual funds saw outflows for eight consecutive months from July till February.

A Balasubramanian, managing director and chief executive officer of Aditya Birla Sun Life AMC and former chairman of AMFI, told ETMarkets.com in an interview last week that “Indian money managers for the last 27 years have been beating the benchmark except for the last two years, which have been challenging.”

Balasubramanian believes that beating the benchmark is irrelevant for Indian investors as they take a portfolio approach to investing. “Beating the benchmark is more incidental,” Balasubramanian had said.

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