Mutual Funds
Majority of mutual funds underperformed their benchmark indices in last five years

According to S&P, majority of the actively managed mutual funds underperformed their benchmark indices over the past five years. However, in 2011 they outperformed the indices

Ratings agency Standard & Poor’s (S&P) said a majority of actively managed Indian equity mutual funds have underperformed their respective benchmark indices over the last five years, but outperformed the indices over the latest 12 months ending December 2011.

“The latest S&P Index Versus Active Funds (SPIVA) scorecard for India highlights the difficulty of picking consistently successful stocks in volatile market conditions, with the majority of active managers underperforming their benchmarks over the latest five-year period. Although they reversed this trend in 2011 and beat their benchmarks as global stock markets tumbled, Indian equity funds still recorded heavy losses during the year—asset-weighted large cap funds fell by 21% while their equal-weighted equivalents were down by more than 22%. Their benchmark S&P CNX Nifty fell by close to 24% in 2011,” said Simon Karaban, director at S&P Indices.
 
The ratings agency said that the SPIVA scorecard for India also revealed that asset-weighted returns were higher than equal-weighted returns for all fund categories apart from gilts over the past five years. Asset-weighted large cap equity funds have returned 4.72% over the past five years compared to 3.41% for their equal-weighted equivalents. This indicates that funds with larger assets under management performed better than smaller funds, it added.

Tarun Bhatia, director for Capital Markets at Crisil Research, said, “The Indian mutual fund industry is going through a consolidation phase. None of the categories had a 100% survivorship over the past five years indicating mergers across categories. Among funds, diversified equity funds had the lowest survivorship in the one and five-year periods, while balanced funds had the lowest survivorship in the three year period.”

According to the SPIVA scorecard, produced by S&P Indices in partnership with Crisil, about 53% of large-cap equity funds failed to beat the S&P CNX Nifty, the leading benchmark index for large-cap companies listed on the National Stock Exchange (NSE), over the five years ending December 2011. Taking 2011 in isolation, however, active managers fared better, with 65% large-cap equity funds producing higher returns than the S&P CNX Nifty, it said.

A similar pattern was seen for diversified equity funds, which offer a wider choice of stocks than large-caps and therefore a greater chance of generating excess returns. About 58% underperformed their benchmark, the S&P CNX 500, over the past five years.  In 2011 alone, however, 54% of diversified equity funds beat the index.

Active managers of Equity Linked Saving Schemes (ELSS) and balanced funds (equity oriented hybrid funds) have also fallen behind benchmarks over the past five years. In contrast, the majority of active managers of Monthly Income Plans or MIPs (debt-oriented hybrid funds), gilt and debt funds (which invest mainly in corporate debt) have outperformed their benchmarks over a five-year period. In 2011, majority of balanced and MIP funds underperformed, while majority of ELSS, gilt and debt funds beat their benchmarks.

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Aircel Maxis deal: CBI to send LRs to the UK and Bermuda

The CBI said the agency might send Letters Rogatory in the first week of March to the UK, Bermuda besides Malaysia and Mauritius as planned earlier. The agency had earlier confined its probe to Malaysia and Mauritius in connection with alleged routing of money in the takeover of Aircel by Malaysian giant Maxis

New Delhi: The Central Bureau of Investigation (CBI) will soon send judicial requests to Bermuda and the United Kingdom seeking details of money trail in the Aircel-Maxis deal in which former telecom minister Dayanidhi Maran is an accused, reports PTI.

The agency has alleged the Marans had received Rs547 crore as kickbacks from the Malaysian telecom company, sources said. These allegations have been refuted by Mr Maran.

Tracking the money trail, the CBI probe has reached the shores of Caribbean island Bermuda and the United Kingdom from where the money was routed to reach Indian companies, agency sources said.

They said the agency might send Letters Rogatory (LRs) in the first week of March to the UK, Bermuda besides Malaysia and Mauritius as planned earlier.

The agency had earlier confined its probe to Malaysia and Mauritius in connection with alleged routing of money in the takeover of Aircel by Malaysian giant Maxis, they said.

Besides Mr Maran, the CBI had also accused his brother Kalanidhi Maran, SUN Direct TV Pvt Ltd director, chairman of Maxis Communication T Ananda Krishnan, senior executive of Astro All Asia Network and Maxis Ralph Marshall and three companies Astro All Asia Networks, Sun Direct TV and Maxis Communications of complicity.

It has been alleged by former Aircel chief C Sivasankaran that Mr Maran as the then telecom minister favoured the Maxis Group in the takeover of his company and in return investments were made by the company through Astro network in Sun TV owned by the Maran family.

Sources in the CBI claimed that quid pro quo on part of the then telecom minister has been established during the probe. It has also been proved during the CBI probe that there is direct evidence that files of Mr Sivasankaran were deliberately delayed, sources said.

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