SPIVA India Scorecard, a report by S&P Dow Jones Indices, said 50 per cent of Indian equity large cap funds underperformed the S&P BSE 100 in the one-year period ending December 2021. In the same period, 50 per cent of India’s mid-/small-cap, and 27 per cent of ELSS funds underperformed their respective benchmarks.
The markets rallied for most part of 2021 in this one-year period with the S&P BSE 100 rallying 26 per cent.
The underperformance is also evident over the long-term horizon, the report said adding that 68 per cent of large-cap funds underperformed their benchmark over the 10-year period ending in December 2021. In the 5-year period, 82 per cent of large-cap fund managers have underperformed.
“Over the one-year period ending December 2021, mid-/small-cap was the best performing fund category amongst the equities covered in the SPIVA India Scorecard. The benchmark for this category, the S&P BSE 400 MidSmallCap Index, was up 51 per cent in the same period,” said Akash Jain, Associate Director, Global Research & Design, S&P Dow Jones Indices.
“Though, market participants in this category of active funds may have witnessed a wider spread in fund returns as the difference in the first & third quartile fund was 19 per cent, thus presenting fund selection challenges.”
Many analysts and famous investors say the consistent underperformance of fund managers makes case for investing in a low cost index fund, which will deliver market-linked returns to investors every year.
Even bond fund managers fail to outperform
The trend of underperforming their benchmark is even more stark in case of bond fund managers. In 2021, 62 per cent of the composite funds failed to beat the benchmark while 79 per cent of the gilt funds had to share the fate.
Over the one-year period ending in December 2021, the S&P BSE India Government Bond Index and the S&P BSE India Bond Index gained 3 per cent and 4 per cent, respectively.
Over longer periods, the majority of active funds in the bond category have underperformed their respective benchmarks. In the 10-year period, none of the fund managers have beaten their benchmarks in the composite bond category.
