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Funds struggle to beat returns by benchmarks

N Sundaresha Subramanian / New Delhi 27 Jun 12 | 12:01 AM

Last week, U K Sinha, chairman of the Securities and Exchange Board of India (Sebi) said the regulator will pull up mutual fund houses where a majority of schemes have been underperforming their benchmarks. He had already identified fund houses which consistently underperformed over the past “three years", he added.

A Business Standard analysis of data provided by mutual fund tracker Value Research for over 240 equity diversified schemes of 35 fund houses, which had a three year track record, show at least five fund houses having all their schemes trailing their respective benchmarks. Another seven fund houses saw more than half of their equity diversified schemes trailing their respective benchmarks over the three-year period ending June 20, 2012.

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The fund houses with the dubious 100 per cent underperformance record include LIC Nomura, Deutsche, JM Financial, BOI Axa and Baroda Pioneer. Ten schemes of LIC Nomura underperformed their benchmark, while JM Financial and Deutsche had four schemes each in this category. BOI Axa had two schemes while Baroda Pioneer had one scheme that trailed its benchmark, among the sample taken for analysis.

Fund house Number of
schemes trailing
% of
Worst performers
LIC Nomura  10 10 100
Deutsche 4 4 100
JM Financial 4 4 100
BOI AXA  2 2 100
Baroda Pioneer  1 1 100
L&T  4 6 67
Sahara  5 8 63
Taurus  3 5 60
IDFC  4 8 50
Principal  3 6 50
Best performers
BNP Paribas 0 3 0
Edelweiss  0 3 0
Fidelity India  0 3 0
ICICI Prudential  0 18 0
JP Morgan India  0 2 0
Kotak  0 7 0
Mirae Asset 0 1 0
Quantum Index 0 1 0
Religare  0 7 0
Reliance  1 15 7
Based on 3-year returns, as on June 20
Source: BS analysis of Valueresearch data

Among the fund houses which had more than 50 per cent of their schemes in the red are L&T Mutual Fund, which had four of its six equity schemes (67 per cent) trailing the benchmark, Sahara (63 per cent) and Taurus (60 per cent).

IDFC, Principal, Escorts and Morgan Stanley are the fund houses, which had exactly 50 per cent of their schemes trailing their benchmarks, while the other half had beaten the benchmark.

HSBC MF and SBI MF had over 40 per cent of their schemes on the list of laggards. Five out of SBI’s 12 schemes were laggards against three out of seven for the former.

On the brighter side, nine fund houses had 100 per cent of their schemes beating their benchmarks over the three-year period ending June 20. These include ICICI Prudential, which had all 18 schemes in the category generating alpha. Others with a 100 per cent record include Kotak and Religare with seven schemes each and BNP Paribas, Edelweiss and Fidelity with three schemes each. Fidelity India’s schemes are in the process of being taken over by L&T Mutual Fund.

Analysts say the mixed trend is the result of the way different companies have reacted to the environment within and outside the industry. According to a recent report by PricewaterhouseCoopers (PwC) titled “Is there a silver lining?", “Volatile market conditions in the last two years have led to net withdrawals by investors to the tune of Rs 49,406 crore in FY 2010-11 and Rs 22,023 crore in FY 2011-12."

Such huge withdrawals rub salt on the injuries of smaller players who are struggling to make ends meet and retain talent, which, in turn, affects the performance. Experts say innovation is the need of the hour.

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