StatsGuru: How has the 20-year-old private MF sector performed?

On the 20th anniversary of private mutual funds setting up shop in India, can it be said that it has lived up to its potential? Certainly, as Table 1 shows, it has grown assets under management considerably - though not, perhaps, as much as it could have. However, if the idea was to enable the participation of small investors in the market for equities, mutual funds have not done as expected. While in the early years, in the 1990s, equity assets were more than debt assets for mutual funds, it was debt mutual funds that really took off first, and equity funds only later - and they have struggled to catch up. Indeed, as Table 2 spells out, investors have soured easily on equity, unlike on debt. Net investment in equity mutual funds has been in negative territory for much of the time shown. And while debt mutual funds' growth has tapered, the investing public continues to be interested in these. Nor is this surprising when the record of private sector equity mutual funds is examined. As Table 3 shows, only over a five-year horizon do equity funds noticeably beat the Sensex. In all other periods, the index has soundly beaten small- and mid-cap mutual funds; large-cap mutual funds are easily beaten by the index in every horizon but three years, where they marginally outperform the market. And, as Table 4 shows, given that debt mutual funds have performed on an average better than equity funds over a five-year horizon, and come of course with lower risk, it is unsurprising that there's been a flight of capital away from equity mutual funds. That isn't to say that some haven't made money-those focusing on sectors like fast-moving consumer goods will have done well. But those investing in overall equity mutual funds will have seen those on an average underperform the market, unlike debt. (Click here for table)