Half of equity mutual fund managers fail to beat the benchmark for another year

NEW DELHI: It is now a known trend that most mutual fund managers fail to beat benchmarks consistently. Calendar year 2021 was no different.

SPIVA India Scorecard, a report by S&P Dow Jones Indices, said 50% of Indian large-cap equity funds underperformed the S&P BSE 100 in the one-year period ending December 2021. Over the same period, 50% of Indian mid/small cap funds and 27% of ELSS funds underperformed their respective benchmarks.

Markets rallied for most of 2021 over this one-year period, with the S&P BSE 100 rising 26%.

Underperformance is also evident over the long term, according to the report, adding that 68% of large-cap funds underperformed their benchmark over the 10-year period ending December 2021. 5 years, 82% of large cap fund managers have underperformed.

“During the one-year period ending December 2021, mid and small caps were the best performing fund category among stocks covered by the SPIVA India Scorecard. The benchmark for this category, the S&P BSE 400 MidSmallCap Index, rose 51% over the same period,” said Akash Jain, Associate Director, Global Research and Design, S&P Dow Jones Indices.

“However, market participants in this active fund category may have seen a greater dispersion in fund returns, as the difference between first and third quartile funds was 19%, which presents challenges in fund selection.

Many famous analysts and investors say that the consistent underperformance of fund managers argues in favor of investing in a low-cost index fund, which will provide investors with market-related returns every year.

Even bond fund managers fail to outperform
The tendency to underperform their benchmark is even more pronounced in the case of bond fund managers. In 2021, 62% of composite funds failed to beat the benchmark while 79% of gilt funds had to share the fate.

In the one-year period ending December 2021, the S&P BSE India Government Bond Index and the S&P BSE India Bond Index gained 3% and 4% respectively.

Over longer periods, the majority of active funds in the bond category have underperformed their respective benchmarks. Over the 10-year period, none of the fund managers beat their benchmark in the composite bond category.

Dolores W. Simon