Even as LIC Mutual Fund faces the heat over heavy losses in liquid and money market investments, its equity schemes and index funds continue to be among the worst performers in their categories
Life Insurance Corporation of India's (LIC) mutual fund company has fallen on troubled times, according to a report in a leading business daily. With questionable investments in liquid and money market schemes, LIC Mutual Fund has notched up losses to the tune of Rs120 crore in its half-yearly earnings report. This hardly comes as a surprise given the pathetic track record across the spectrum of mutual fund schemes launched by the subsidiary of the country's largest financial institution.
LIC enjoys the trust of millions of insurance policyholders in the country, who bank on its safe image and clean record for settling claims. Unfortunately, this has not been the case with LIC MF. For long now, a majority of LIC MF's schemes have been among the worst performers in their category and have earned a notorious reputation for underperformance and average returns.
Here are some bare facts. Be it equity diversified funds, index funds or debt funds, LIC's schemes figure at the bottom of the performance charts in all categories. It would be hard for any fund house and its schemes to be such consistent underperformers. Among the 20 worst-performing equity funds over the past five years, as many as five schemes are from LIC. All these schemes have grossly underperformed their respective benchmarks. These include the LIC MF Tax Plan (11%), LIC MF Opportunities (12%), LIC MF Sensex Advantage (12%), LIC MF Growth (13%) and LIC MF Equity (14%).
LIC MF has two index funds in its portfolio-LIC Index Sensex and LIC Index Nifty. It has, somehow, managed to make a mockery of the passive investing concept too. Launched in November 2002, the LIC Index Sensex has returned 15.77% over the past five years, while its benchmark, the Sensex, has gained 19% in the same period. Meanwhile, the LIC Index Nifty has delivered 14.6% returns over the past five years, compared to 19% gains by the S&P CNX Nifty over the same period. This humungous tracking error shows that fund managers have tried to time the market at their own peril. If fund managers make a hash of even passive investing, what hope would investors have of getting decent returns from its actively managed funds?
It is easy to see that LIC's expertise does not in any way lie with mutual funds. Its performance so far has been only marginally better than JM Mutual Fund, which we identified as being the worst performing fund house in the country. (Read more about JM Mutual Fund in "Worst Fund House" at http://www.moneylife.in/article/6696.html)