Most debt-based mutual funds underperform in last 5 years

In terms of returns to investors, most of the debt-based mutual funds in the country underperformed compared to their respective S&P benchmark indices, over the last five years, says a report.
The comparative analysis between debt-based funds and S&P India's two benchmark indices -- government bond index and bond index -- is for the five years ended June 2014.
According to the report by S&P Dow Jones Indices, more than 78 per cent mutual funds in Indian government bonds failed to beat S&P India Government Bond Index, while 53 per cent Indian Composite Bond funds were outperformed by S&P India Bond Index.

"The interest rate remained higher and impacted the active managers in the Indian government bond peer group which underperformed the S&P India Government Bond Index over one, three and five-year periods," Asia Index Private Ltd Senior Analyst Utkarsh Agrawal said.
"Almost a quarter of the funds in this peer group disappeared over the five-year period. Active managers in the Indian composite bond category also could not outperform the benchmark in the five-year period," Agarwal added.
Moreover, as many as 54.36 per cent large-cap equity funds underperformed compared to their benchmark index, S&P BSE 100, in the last five years.

In comparison, only about 34.3 per cent Indian Equity Linked Savings Scheme (ELSS) funds and 38.6 per cent Indian Equity Mid/Small Cap funds underperformed their respective benchmark indices -- S&P BSE 200 and S&P BSE Mid cap -- in the five year period, the report said.

The findings are based on S&P Indices Versus Active Funds (SPIVA) scorecard which measures performance of actively managed Indian mutual funds against their benchmarks.
"Although the actively managed Indian large-cap equity funds outperformed the S&P BSE 100 over a one-year period, they underperformed over the five-year period," Asia Index Private Ltd Senior Analyst Utkarsh Agrawal said.
According to Agarwal nearly 17 per cent of the mutual funds in the large cap equity segment have disappeared, which signify "the difficulty that active managers face in this peer group over longer time periods".
Among the various segments, the report found that only Indian ELSS funds maintained a survivorship rate of over 95 per cent for the five year period, while the same stood at less that 80 per cent for the Indian mid- cap/small-cap equity funds and Indian government bond funds.

Besides, the survivorship rate of Indian large-cap equity funds and Indian composite bond funds was 83 per cent and 93 per cent respectively, over the five year period.
Asia Index is a 50-50 partnership between S&P Dow Jones Indices and leading Indian bourse BSE.