Equity Funds Across Categories and Composite Bond Funds Underperform Their Respective Benchmark

By Tricitynews Reporter

Chandigarh 28^th March:- The latest SPIVA India (S&P Indices Versus Active Funds) Scorecard reveals that over a one-year period, ending December, 2016, 66.29% of Large-Cap Equity funds, 64.29% of ELSS funds and 71.11% of Mid/Small-Cap Equity funds underperformed their respective benchmark indices. Produced by Asia Index Private Limited, an equal joint-venture between BSE and S&P Dow Jones Indices.  The SPIVA Scorecard also shows that the majority of the Composite Bond funds underperformed S&P BSE India Bond Index over 1-, 3-, 5-, and 10- year periods, whereas the majority of Government Bond funds underperformed S&P BSE India Government Bond Index over three, five and ten year periods.

The SPIVA India Scorecard has evolved with new features being added every year. This year, apart from extending the history to ten years, SPIVA India also introduced style consistency which aims to capture the percentage of funds that have diverged from their initial investment categorization. Globally, style classification is an important metric that guide investors in their asset allocation decisions. 

Akash Jain, Associate Director, Global Research & Design, Asia Index Private Limited said that studies reveal that over the 1-, 3-, and 5-year periods ending December 2016, only Indian ELSS funds maintained 100% style consistency.  Over the 10-year period, only 30.63% of Indian Equity Large-Cap funds and 28.57% of Indian Equity Mid-/Small-Cap funds preserved their style.

To evaluate how the largest funds by AUM have performed against their peers, the report compares asset-weighted returns to equal-weighted returns and highlights that, over the ten-year horizon, maximum divergence (of nearly 99 bps) in any category has been observed in the Mid/Small-Cap space. Also, over the same period, the report notes a wide divergence between best performing funds against the laggards and observed that 1^st quartile outperforms the 3^rd quartile by 3.55%, 3.56% and 4.33% in the Large-Cap, ELSS and Mid/Small-Cap categories respectively. In the case of Government Bond Funds and Composite Bond Funds the divergence is 1.61% and 1.53% respectively.