InvestorQ : How have actual mutual funds performed compared to the benchmark indices in the last one year?
Dilmini Mercia made post

How have actual mutual funds performed compared to the benchmark indices in the last one year?

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Dawn Cherian answered.
4 weeks ago
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S&P has done this recent study for the last 1 year and the last 5 years to December 2021. The broad finding is that majority of equity funds struggled to beat the benchmark indices, but this is normally a global phenomenon where most active funds struggle to beat the index. However, to get a perspective, let us look at the short term performance report and the long term performance report separately.

For short term a period of 1 year has been considered. If large cap funds are compared to the index on 1-year returns, just about 50% of funds managed to outperform the index. The ratio is the same even for ELSS funds or the small cap and mid-cap funds, which are supposed to be the alpha plays. In all these cases, about half of the funds did better than the index, which can be broadly attributed to a typical toss-of-coin probability.

However, funds have fared worse at the longer end, which is a concern since equity funds are supposed to be long term investments by default. Over a 5-year period, nearly 85% of these active funds did worse than the benchmark indices. Ironically equity funds are supposed to be long term wealth creators. This is largely an outcome of kurtosis as a handful stocks only outperform and mutual funds have limits to stock exposure.

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