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.
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.