86% of domestic equity large-cap funds underperformed their benchmark: Report

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Although equity-oriented mutual funds are currently witnessing net inflows since March 2021, when one compares it to one year ending June 2021, it depicts an entirely different picture.

According to the latest S&P Indices Versus Active (SPIVA®) India Scorecard, 86.2% of Indian Equity Large Cap funds, 57.1% of Indian Equity Mid-/Small-Cap funds, and 53.7% of Equity Linked Saving Schemes (ELSS) funds underperformed their respective benchmarks over the one year ending June 2021.

Further, when looking from the long-term horizons, over five years ending in June 2021, 82.7%, 76.2%, and 69.6% of Indian equity large-cap, ELSS, and mid/small-cap funds, respectively, underperformed their benchmarks.

“Over the one year ending in June 2021, Mid-/Small-Cap was the best performing fund category amongst the equity categories covered in this scorecard with the S&P BSE 400 Mid-SmallCap Index returning 90.6%. Though market participants invested in this category of funds may have witnessed a widespread in fund returns, during this period, the difference in the first & third quartile fund returns was as high as 27.9% posing fund selection challenges to investors,” Akash Jain, Associate Director, Global Research & Design, S&P Dow Jones Indices.

Over five years ending in June 2021, 71.4% and 97.9% of the Indian Government Bond and Indian Composite Bond funds, respectively, also underperformed their respective benchmarks.

The SPIVA India Scorecard compares actively managed Indian mutual funds to their respective benchmark indices across one-, three-, and five-year investment horizons.

Rising equity mutual fund

If one looks at this year’s trend today, investors are keen to adopt equity funds in light of decreasing yields on debt instruments such as bank FDs and flat returns on gold. While some of the rises can be attributable to new fund offerings, the general attitude toward equity has significantly improved from retail investors.

Retail participation has continued to grow, as evidenced by the increase in SIP book volume over the last few months, particularly since March. It increased from nearly 8,000 crores in September 2020 to around 10,000 crores on August 21.

Retail investors continue to take a long perspective on equity, mainly through systematic investment plans (SIPs). Even though markets have reached new highs, the above factors will continue to support retail flows.