How have Active Equity Mutual Funds Performed: May 2019 Report

Published: May 18, 2019 at 10:09 am

Last Updated on December 29, 2021 at 1:02 pm

Let us find out how actively managed equity mutual funds have performed against reperesentative category benchmarks using the May 2019 Equity Mutual Fund Performance Screener. The screener compares every possible 1,2,3,4 and 5-year returns of active funds with indices from April 3rd 2006.  So please note that we are evaluating performance over the last 13 years and not just the last few years to claim “this is the time to index”

Before we begin, some announcements: Check out the latest from freefincal on Youtube: What is the mood of the market before the Lok Sabha 2019 results? Also, Which category of mutual funds is best suited for retail investors?

Definitions: (1) 70% or more five-year return outperformance filter. Suppose we have 200 5-year returns of both the index and fund. A fund would qualify only if it has beat the index at least 70% of 200 or 140 times. This is a reasonable requirement of an active fund.

(2) 70% or more downside protection consistency filter. Suppose for each of those 200 5-year periods, we consider the monthly returns of the index and fund. We check the fund return when the index return was negative and compute a quantity known as the downside capture. If the downside capture is less than 100%, then it means the fund has captured less than 100% of the index losses over a five year period. So we check if the fund has shown a downside capture of < 100% for at least 140 of those 200 periods (>= 70%). Again a reasonable requirement, in my opinion.

Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥

How have Active Equity Mutual Funds Performed: May 2019 Report

We start with 169 equity funds across 7 categories (see table below) ==> Apply 70% or more five year return outperformance filter, the number drops to 76, a drop of 55% ==> Out of this 76, we apply a 70% or more downside protection consistency filter,  the count now is 63, only a 17% drop.

Two takeaways at this point:

  1. If you are an active mutual fund fan, stop chasing returns! Chase downside protection first! Funds that consistently protect the downside also tend to produce better returns! Read more: What is mutual fund downside protection and why is it important?
  2. If you are worried about active fund performance, you are justified: more than half the number of funds across all categories have managed to beat the chosen category benchmarks at least 70% of the time. So it is pretty much impossible to judge which fund will beat the index in future. If you wish to stick to active mutual funds, more active management is necessary!

Now out of the above 63 expect 70% return outperformance over 4 years, the number drops to 50 (20% fall) ==> Add 70% downside protection, we are left with 46 funds (8% fall).

Now, if we independently expect the funds to beat the category indices at least 70% of the time over three years, the numbers drop from 169 to 54  (68% fall) and that is simply not acceptable for the high fee that they charge and the crores that they earn.

Category wise Performance

Now let us repeat the above exercise for each category. The column filter has three numbers.  So if we take actively managed large cap funds as an example, there are 29of them (1st no), and if we apply >= 70% return outperformance consistency filter for 5 years, we only have 17 (2nd no) and if we apply the >= 70% downside protection consistency, we left with 8.  This is shown below as 29-> 17-> 8. Now 29 -> 17 is not so terrible but 17-> 8 is simply pathetic. Also see: Only Five Large Cap funds have comfortably beat Nifty 100!

Note there are 48 large cap funds but 19 of then track the Nifty, Sensex or Nifty Next 50 and have been excluded in this study. Why exclude Nifty Next 50 funds? Because Nifty Next 50 is NOT a large cap index!

Large CapNifty 100 TRI29-> 17 -> 8
MulticapNifty Largemidcap 250 TRI42 -> 15 -> 14
ELSSNifty Largemidcap 250 TRI31 -> 9 -> 8
Large & Mid capNifty Largemidcap 250 TRI20 -> 8 -> 8
Value-orientedNifty Largemidcap 250 TRI14 -> 7 -> 6
MidcapNiftyMidcap150TRI19 -> 10 -> 9
SmallcapNiftySmallCap50-TRI14 -> 10 -> 10

Notice for Large-cap, Multicap, ELSS, Large and Multicap and Value-oriented categories, 50% or less than 50% of funds managed to beat the category index by 70% or more of the 5Y return periods considered.

One might argue that the Nifty Large Midcap 250 TRI is not a fair choice of benchmark. Now if all you have to do is to take 50% of Nifty 100 and 50% Nifty Midcap 150 to beat these categories, what does it say about “active management”. Oh by the way, as expected Motilal Oswal is unlikely to come with an index fund for this. If they do, then their own funds may have trouble beating this!!

To find out which funds made the shortlist and which fund did not get the May 2019 Equity Mutual Fund Performance Screener

Conclusion:  Actively managed large cap funds have not been performing well enough long before the SEBI categorization came into force.  If you think large and midcap or multicap funds are the alternatives, then the benchmark should shift from NIfty to something else (Nifty LargeMidcap 250 used here)!

I have said this before and I will say it again: Stick to aggressive hybrid, multi-asset or balanced advantage funds for guaranteed downside protection justifying the higher management fee. We shall consider how these have performed in another post.

Before we begin, some announcements: Check out the latest from freefincal on Youtube: What is the mood of the market before the Lok Sabha 2019 results? Also, Which category of mutual funds is best suited for retail investors?

Do share this article with your friends using the buttons below.

🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
Follow Freefincal on Google News
Follow Freefincal on Google News
Subscribe to the freefincal Youtube Channel. Subscribe button courtesy: Vecteezy.
Subscribe to the freefincal Youtube Channel.
Follow freefincal on WhatsApp Channel
Follow freefincal on WhatsApp
Podcast: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth! 
Listen to the Lets Get Rich with Pattu Podcast
Listen to the Let's Get Rich with Pattu Podcast
You can watch podcast episodes on the OfSpin Media Friends YouTube Channel.
Lets Get RICH With PATTU podcast on YouTube
Let's Get RICH With PATTU podcast on YouTube.
🔥Now Watch Let's Get Rich With Pattu தமிழில் (in Tamil)! 🔥
  • Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
  • Have a question? Subscribe to our newsletter using the form below.
  • Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.

Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!

About The Author

Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course!  Increase your income by getting people to pay for your skills! More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both the boy and girl-version covers of "Chinchu Gets a superpower".
Most investor problems can be traced to a lack of informed decision-making. We made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So, in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it, as well as teaching him several key ideas of decision-making and money management, is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)