Only 50% of equity funds with 5-year record have outperformed their benchmarks

At least 20% of the 121 funds made only single digit gains—worse than FDs, but for the tax advantage enjoyed by equity funds. This underscores the need to buy the right fund at the right time

As we enter the financial year 2011-12, it's a perfect time to take a hard look at your mutual fund holdings. While mutual funds are a great financial product for creating long-term wealth creation, it would be disastrous for you if you get stuck with a wrong scheme. The generalised saying that "mutual funds are a good investment product" has no value if you make mistakes in what you choose, when you buy, and when you sell.

One way of getting a fix on what to buy is fund performance over a long period of time. Moneylife has done an analysis of funds which have completed five years since inception. That means that the fund with the shortest duration is in existence from 2006. The Sensex was 10,802 around mid-March 2006 and it is now at around 18,440 in mid-March 2011. Thus it has risen by 11%, compounded in the last five years. These five years have been topsy-turvy.There has been a sharp rally, a huge decline and then a sharp rebound again.

Funds with an even longer duration than five years have gone through multiple cycles. They have gone through a number of bear, bull, volatile and stagnant cycles. They have had ample time to choose the correct stocks and show their performance over a long period. So let's look at the performance of 121 equity schemes, which have been around for five years and more.

These funds on an average fetched 17% returns. But averages can be deceptive. Out of 121 equity growth schemes, only 50% (that is 62) have outperformed their benchmarks; 52 schemes have underperformed; and 7 have just managed to equal their benchmark returns.

The top performing three schemes are Reliance Growth, HDFC Equity Fund and Sundaram Select Midcap. Reliance Growth was up by 28% while the other two fetched returns of 23% and 36% respectively. There is no trend among the top performers. So how should you interpret the data? Look for steady performers. Also look for fund houses that throw a lot of good performers year after year.  

For instance, among the outperformers there were six funds from HDFC Mutual Fund- HDFC Capital Builder Fund - Growth, HDFC Core & Satellite Fund - Growth, HDFC Equity Fund -Growth, HDFC Growth Fund-Growth, HDFC Premier Multi-Cap Fund - Growth, HDFC Top 200-Growth, with an average return of 21%. These funds have beaten their benchmarks by 7% on an average.

 If HDFC was the best fund house, UTI and JM funds drained out investors' wealth. Among the 20 worst performers UTI and JM had 4 each. JM funds have underperformed their benchmark by 14% on an average. These include JM Basic Fund (1%), JM Emerging Leaders Fund-Growth (-7%), JM Large Cap Fund-Growth (9%), JM Mid Cap Fund-Growth (12%).

Whereas for UTI, its funds have underperformed their benchmarks by 11% on an average. These include UTI Equity Fund-Growth (9%), UTI MasterShare-Growth (7%), UTI Top 100 Fund-Growth (6%), and UTI Variable Investment Scheme-Growth (6%).  All these funds are more than five years in existence.

Among the other 20 worst performers are Franklin India Smaller Companies Fund-Growth (6%), SBI Magnum Bluechip Fund-Growth (6%), L&T Multi Cap Fund-Growth (9%), Tata Midcap Fund-Growth (8%), SBI Magnum Equity Fund-Growth (7%), Taurus Discovery Fund-Growth (4%), HSBC Progressive Themes Fund-Growth (1%) and L&T Global Advantage Fund-Growth (-1%).

Disclaimer: All our mutual fund analysis is based on the data purchased from Mutual Funds India database, controlled by rating agency Moody's of US. While the analysis is our own we cannot guarantee the that Mutual Funds India has reported the data correctly.

 

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COMMENTS

paul dmello

8 years ago

You have said hdfc is the best mutual fund manager but i have insvested since august 2010 and as of now i have lost wquite a few thousands since then in hdfc tope 200/hdfc equitee

Shashank

8 years ago

Please do share the detailed analysis report or the web link where available - thanks.

bharat shah

8 years ago

wish moneylife do research on 5 years' or more old diversified mutual fund schemes for minimum turnover over a period, and given optimum return, so that the investor could know who is investing in businesses, and not in price.

Nayan

8 years ago

I would like to know, how one can write at Moneylife. i.e. an Article.

rajendra

8 years ago

great eye-opener for our distributor community. we always try to advise good fund to the investor but the key is regular review. we must stress this need to the investor also. very good work. thanks.

Pankaaj Maalde

8 years ago

Performance of most of the LIC MF 's schemes is also pathetic. There is no reference to this. request you to give details of all the schemes.

K B Patil

8 years ago

I agree with a reader's comment about HDFC. In 2009, I invested in HDFC Equity Fund through Kotak Securities. When I received a statement from HDFC, the address of the investor was totally wrong i.e not my address but something totally different. On sending several emails to HDFC and calls, I got only stereotyped replies that I must take up the matter with Kotak Securities since it has come through them. So, for a routine matter like address correction, I had to struggle for a month.

REPLY

Investor

In Reply to K B Patil 8 years ago

A few years ago, when investors purchased through online sites like kotak, the Mutual Fund got only the addresses from the online distributors who were responsible for the address. Now sebi has changed this and you can go directly to the fund for address corrections

R Balakrishnan

8 years ago

This is brilliant. Globally less than ten percent of fund managers beat their benchmarks. We should be delighted that nearly half the fund managers outperform their benchmarks.

REPLY

Debashis Basu

In Reply to R Balakrishnan 8 years ago

In a bull market...
Lets see what they do now.
Well, read our story today about the early MFs that's coming up in about 2 hours on this site

Pjasani

8 years ago

wt about the HDFC tax saving plan & HDFC long term advantage fund??

Performance???

Prakash Hebalkar

8 years ago

Why don't you give the full chart so we can all spot our wins and our mistakes! BTW choice of an appropriate benchmark is often a problem as there are more investment ideas than benchmarks, especially with sector funds or internationally focused funds.

endee

8 years ago

I am a distributor of almost all AMCs since last 7 years. Most unfriendly, most unresponsive, in a personal touch manner caring for their problems & trying to sort out the queries, is HDFC. This expression is a result of personal experience especially over last 1-2 years since automation has been overused e.g. there is only one toll free no, one common board phone no for head office, all branches, one common email for investor/distributor and the chief investor grievance redressal officer. The email is auto replied with an assurance for a reply within 2-4 working days. The email reply may come in time but the contents will NOT do full justice to the query.There will NEVER be a personal call to the investor/distributor to solve the issues at hand. They are willing to spend on courier STANDARD FORMAT letters but NOT willing to talk or make client/distributor understand the problems & result in timely solutions.

REPLY

Debashis Basu

In Reply to endee 8 years ago

thanks very much for sharing this information.

endee

In Reply to Debashis Basu 8 years ago

Thanks Debashis.
I request for an appointment with you for about 10 minutes between 3-4 pm or after the Seminar, on 22/3/2011 when I am coming to Moneylife Foundation Seminar. Pl confirm. Tks in advance.

Debashis Basu

In Reply to endee 8 years ago

Sure. Please mail me at [email protected]

mary

In Reply to endee 8 years ago

i had thought that the hdfc amc was one of the best! then who is better?

endee

In Reply to mary 8 years ago

There is none the best for 2-3 years or more and may remain so , also in the future. But DSP, Fidelity, Birla, DWS, Sundaram etc have fared better at some point of time.But the main thing is A SCHEME from an AMC which GIVES SUPERIOR RETURNS on a risk/returns parameter. One MUST continuously keep monitoring every 3-6 months & modify one's portfolio, based on the conclusions / performance then taken.

mesa

8 years ago

Please compare gold price, select mutual funds, fixed deposits. Your article though informative is not comprehensive

mary

8 years ago

sir,

thx.
very informative analysis.
but where is the complete list?

MOSt shares Nasdaq-100 ETF, India’s first US equity-based ETF, opens on 16th March

Motilal Oswal’s new ETF gives the Indian investor an opportunity for exposure in some of the largest US non-financial stocks. And it costs less than most actively-managed funds

Motilal Oswal is launching Motilal Oswal MOSt Shares NASDAQ-100 ETF (MOSt Shares N100), which seeks to track the NASDAQ-100 Index. It will be India's first US equity-based exchange traded fund (ETF). MOSt Shares N100 will be listed on the National Stock Exchange and the Bombay Stock Exchange. The new fund offer will open for subscription on 16 March 2011 and remain open till 23 March 2011.

The scheme will invest in shares that constitute the NASDAQ-100 Index and it will be benchmarked against the NASDAQ-100. Index funds and ETFs usually track a particular index. Investing in an index lowers the risks and costs.

ETFs charge a maximum of 1.5%, as against 2.25% by actively-managed funds. But while actively-managed funds have higher charges, most of them are not known to have beaten their benchmarks. This is the principal reason why index funds or ETFs are a preferred option. In effect, on lower costs the returns are higher and volatility is also lower. One thing, however, to be careful about is that one should not buy ETFs that overlap.

MOSt Shares NASDAQ-100 ETF offers Indian investors genuine scope for diversification with diverse tech and biotech stocks that make up the NASDAQ-100 universe. It will give Indian investors an opportunity of exposure to such US stocks like Microsoft, Google, Amazon, Yahoo and eBay. The NASDAQ-100 Index does not have any financial company stocks. These companies also bear a lower correlation with the Indian stock markets.

But, as is the normal case, in order to get smart returns, one must buy ETFs when the prices are down. In this respect, the Nasdaq is not exactly in a depressed state now. It would also be relevant to point out that while the NASDAQ-100 has given a return of about 41% over a period of five years, the Sensex has given a return of 75% in the same period. Again, it's the timing of the investment that is important.

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COMMENTS

Prakash

8 years ago

It seems the Annual Management Fees is around 0.75% which is also very high compared to 0.30%-0.45%

Prakash

8 years ago

I did a small search on the net and observed that similar NASDAQ 100 ETFs have Annual Management Fees in the range of 0.30% (Lyxor ETF) or 0.40% (HQ NASDAQ 100 ETF), or 0.45% NOMURA's Next Funds NASDAQ 100 ETF, whereas MOST Shares NASDAQ 100 ETF charges an exhorbitantly high 1%. This data is available on the website of OMX (https://indexes.nasdaqomx.com/data.aspx?IndexSymbol=NDX) with whom Motilal Oswal has tied up with. Why are we being charged so high ?

REPLY

zulu

In Reply to Prakash 8 years ago

Currency conversion and smaller lot sizes. From the SID the fee is capped at 1% - actual could be different.

Arbitrage funds: Saved by taxes

Arbitrage funds are supposed to offer safe and steady returns. Do they?

Arbitrage funds appear to be one of the best options in a volatile market for investors who wish to invest in a low-risk portfolio and yet earn decent returns. Theoretically, these funds benefit from the arbitrage opportunities arising out of price differences between the equity and derivatives segment of the stock...

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