Mutual funds may well be called investment plans with a long-term horizon, but if a recent study is to be believed, then there are not many schemes that outperform the benchmark indices over a longer time horizon.
According to Crisil, a majority of actively managed fund schemes have underperformed their respective benchmark indices over the last five years. Actively managed schemes refer to the non-index funds that require regular monitoring of the portfolio.
?The percentage of actively managed equity funds underperforming the benchmark indices has seen a declining trend since December 2010; however, their number still exceeds those outperforming the indices,? stated a release issued by Crisil based on its latest S&P Indices Versus Active Funds (SPIVA) scorecard.
The research revealed that a majority of large-cap equity funds failed to beat the S&P CNX Nifty. While 53.33% of the funds underperformed their benchmark over the last five years, 57.14% and 52.63% funds underperformed their benchmark over the last three years and one year, respectively.
Further, over 53.10% of diversified funds outperformed the benchmark S&P CNX 500 in the one-year period ended June 2012. This number increased to 61.6% in the three-year period, but again dropped to 49.5% in the five-year period. ?The underperformance of actively managed funds in comparison to the benchmarks over the latest five-year period demonstrates once again the difficulty for fund managers to consistently outperform the benchmark,? says Simon Karaban, director, S&P Indices.
A similar trend was visible in the ELSS, where the percentage of funds outperforming the benchmark in both the one-year and three-year period was stable at about 70%, but dropped significantly to 44.83% in the five-year period. Meanwhile, active managers of equity oriented hybrid funds have also fallen behind benchmarks over both one-year and five-year time frames. In contrast, the majority of active managers of debt-oriented hybrid funds or MIPs outperformed the benchmark index over the three-year and five-year time-frames.
