With great fanfare the mutual fund industry announced CRISIL-AMFI Equity Fund Performance Index yesterday, which is claimed to give an annualised return of 22%. However, a simple check shows that there were 25 equity schemes in April 1997 (that have survived) and only six have delivered a return above 22%. The average return of all equity schemes was 17%

At the Mutual Fund Summit 2013 organised by the Confederation of the Indian Industry (CII), CRISIL and the Association of Mutual Funds in India (AMFI) jointly launched a family of mutual fund performance indices across all categories. As per the report titled CRISIL-AMFI Mutual Fund Performance Insights, “These indices, the first of their kind in the country, represent the performance of various mutual fund categories and enable comparison of these categories with appropriate benchmarks across time frames and market cycles.” Out of the five main categories, the CRISIL-AMFI Equity Fund Performance Index is claimed to have delivered an annualised return of 22% since 1 April 1997, as compared to annualised returns of 12% and 13% by the benchmarks CNX NIFTY and CNX 500, respectively during the same period.
 

The report does not mention a word about the methodology. Since 22% appeared to be a very high average number, Moneylife decided to analyse the performance of equity diversified schemes over this period. To our surprise we found out that there were 25 schemes launched prior to 1 April 1997 which are still in existence. Out of these schemes there were just six schemes which delivered returns greater than 22%. The average return of the schemes was 17% with the top five schemes delivering an average return of 26% and the bottom five schemes delivering a return of 7.18%. CRISIL-AMFI Equity Fund Performance Index looks grossly flawed.
 

Of course, our data is biased in favour of survivors. If we want to free it from survivorship bias, the 17% figure will drop down drastically because we will have to include the dregs of fund list which have been closed and merged.
 

The report mentions that the indices are constructed using schemes that are ranked by CRISIL under its quarterly mutual fund rankings. The indices are meant to reflect the performance of funds at an aggregate level. Has the Crisil-AMFI index been adjusted for ‘non-surviving’ mutual fund houses? Fund houses like those of PNB Mutual Fund, Alliance Capital Mutual Fund, BOI Mutual Fund and BOB Mutual Fund have failed to continue their business. How does the index adjust for the performance of the schemes of such fund houses or even schemes of present fund houses which get merged with other schemes?
 

Moneylife sent an email to AMFI and CRISIL to learn more about their methodology for calculating the index, however, no reply was received till the time of publishing this article.
 

Roopa Kudva, managing director and chief executive officer, CRISIL, at the launch said “Retail investors can use these indices as a standard performance metrics to understand the benefits of investing through mutual funds.” However, if retail investors were to follow this index, it would give them a flawed judgement of performance. The performance analysis, that too, from reputed institutions.

Disclaimer: All our mutual fund analysis is based on the data purchased from Mutual Funds India database of ICRA Online. While the analysis is our own, we cannot guarantee that Mutual Funds India has reported the data correctly.