Last Updated on August 30, 2021 at 9:13 am
We find out how many equity mutual funds beat category benchmarks in September 2019. We also find out how many did so at lower risk! The category benchmarks are those used in the Sep 2019 Equity Mutual Fund Performance Screener (see list below). Yesterday we saw only 20 funds managed to beat the index at lower risk over the last 1,2,3,4 and 5 years. We shall look at the year-wise break-up in this post.
Category benchmarks used
The following benchmarks representative of the category was used in the study.
| Category | Benchmark |
| Aggressive Hybrid Fund | Nifty 100 TRI |
| Contra Fund | Nifty 100 TRI |
| Dividend Yield Fund | Nifty 100 TRI |
| Large Cap Fund | Nifty 100 TRI |
| ELSS | Nifty Largemidcap 250 TRI |
| Focussed Fund | Nifty Largemidcap 250 TRI |
| Large & Mid Cap Fund | Nifty Largemidcap 250 TRI |
| Multi-Cap Fund | Nifty Largemidcap 250 TRI |
| Sectoral/ Thematic | Nifty Largemidcap 250 TRI |
| Value Fund | Nifty Largemidcap 250 TRI |
| Mid Cap Fund | NiftyMidcap150TRI |
| Small Cap Fund | NiftyMidCap150-TRI |
Performance in the last 1,2,3,4,5 years (as on Sep 16th 2019)
Last five years
- We looked a total of 244 equity funds
- Out of these only 108 (44%) were able to beat the index
- Out of these 108, 58 were able to beat the index at lower risk (53%)
- Out of these only 108 (44%) were able to beat the index
Last four years
- We looked a total of 246 equity funds
- Out of these only 85 (34%) were able to beat the index
- Out of these 85, 41 were able to beat the index at lower risk (48%)
- Out of these only 85 (34%) were able to beat the index
Last three years
- We looked a total of 249 equity funds
- Out of these only 96 (39%) were able to beat the index
- Out of these 96, 53 were able to beat the index at lower risk (55%)
- Out of these only 96 (39%) were able to beat the index
Last two years
- We looked a total of 253 equity funds
- Out of these only 127 (50%) were able to beat the index
- Out of these 127, 94 were able to beat the index at lower risk (74%)
- Out of these only 127 (50%) were able to beat the index
Last one year
- We looked a total of 299 equity funds
- Out of these only 214 (71%) were able to beat the index
- Out of these 214, 140 were able to beat the index at lower risk (65%)
- Out of these only 214 (71%) were able to beat the index
Observations
Above two-years, finding a fund that can beat the index becomes worse a coin toss problem (probability of finding a good active fund is less than 50%). So index investing is the solution. However, apart from Nifty/Sensex and Nifty Next 50 index funds, there are still no viable solutions in India. Before you say “how about the new funds from Motilal Oswal”, please see these articles:
- Motilal Oswal Nifty 500 Fund: Avoid & stick to Nifty 50 Index funds
- Motilal Oswal Nifty Midcap 150 Index Fund: Should you invest?
- Motilal Oswal Nifty Smallcap 250 Index Fund: Will this make a difference?
- Motilal Oswal Nifty Bank Index Fund Review: a large cap fund replacement?
Before you say “how about ETFs?” Check these out:
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- ICICI Nifty Next 50 Index Fund vs Reliance ETF Junior BeEs
- ETFs vs Index Funds: Stop assuming lower expenses equals higher returns!
- Interested in ETFs? Here is how you can select ETFs by checking how easy it is buy/sell them
Over 3,4,5 years only about half the funds beat the index and among such funds, about half do so at a lower risk.
Over the last 1,2 years (when mid and small cap based indices have been going down), active funds have done significantly better. Most of those outperformers beat the index at a lower risk. This highlights the importance of downside protection associated with active management. Even if it may or may not work over the long term, it helps the investor stay a bit calmer over the short- term.
However, this only applies to fund categories other than large cap. See: Only Five Large Cap funds have comfortably beat Nifty 100! Downside protection of active large funds has not been great too! Also, there are no viable options to index invest in non-large cap categories as of now. Unfortunately, even if available, because of the SEBI categorization rules it would be quite easy for the fund managers to beat midcap or small cap or any other blend indices!
Would you rather opt for low volatile active funds that may or may not beat the index (in terms of return) or choose low-cost index funds?
Individual portfolio management is crucial in both cases, however, most investors are likely to think better when they are calmer.
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