EQUITY MUTUAL FUNDS : BAD PERFORMANCES UNPLUGGED

The one-year performance of several diversified equity schemes hardly provides an encouraging picture in the current volatile market condition. In a situation where all major bellwether indices recorded negative returns we look at the ability of fund managers to contain declines better major indices.

A fund at the top of performance chart at any point in time need not necessarily have beaten its benchmark. There could also be funds that beat their benchmark during rallies but hugely under-perform them during downturns.

While selecting a fund, it is, therefore, imperative for investors to not only look at the top funds, but also the ones among them that have consistently beat their respective benchmarks.
Beating major indices

We analysed about 150 diversified equity funds to see how many of them had beat major indices at the BSE and NSE. The S&P CNX Nifty with a one-year return of -44.6 per cent (as of January 22) was the toughest benchmark for the year. Two out of every five funds, or 40 per cent of the 150 funds, beat this index. A good number of dividend yield funds and others such as UTI Contra, IDFC Imperial Equity and DSPBR Top 100 appeared in this list. However, about 58 per cent, or 88 funds, beat the Sensex return of -47.3 per cent. As the Sensex and the Nifty were the least declined diversified indices, the diversified equity funds which beat these indices would have beat their individual benchmarks as well.

For the bottom list, we took BSE-500, one of the worst performing indices over the year, as a benchmark. About 32 funds, or 20 per cent of the universe, fell more than the BSE 500 return of -51.5 per cent. Funds from the JM house and Taurus Discovery fell over 70 per cent.

However, funds that contained losses over this year were not necessarily the top performers during bull markets. For instance, dividend yield schemes typically find it difficult to achieve high returns during bull markets but in a bear market they outpace other diversified peers as a result of their stock selection.

Birla Sun Life Dividend Yield, Fortis Dividend Yield, ING Dividend yield contained losses better than major indices over a one-year period but underperformed in the bull phase and did not record healthy returns over a three-year period.