Mutual Funds Under-perform Nifty & Sensex

It is very disappointing that the much touted diversified mutual funds headed by star fund managers like Prashant Jain, Kenneth Andrade, R. Srinivasan and Sunil Singhania have been unable to beat the humble benchmark indices.

On a YOY basis, the Nifty has given a return of about 6.38%. It closed at 5635 on 26.11.2012 and closed at 5995.45 on 22.11.2013. If you take the closing of 6115 on 25.11.2013, then the return is about 8%.

In contrast, the much fancied mutual funds run by rockstar fund managers have grossly under-performed.

The HDFC Top 200 Fund (G), which is run by Prashant Jain has given a return of only 3.4% in the same period. The reasons for the underperformance is not immediately apparent because a bulk of the portfolio is in the same stocks as the Nifty, namely, Infosys, ICICI Bank, Reliance, ITC, L&T, Tata Motors etc.

Reliance Growth Fund – IP (G), which is managed by Sunil Singhania, was a very poor performer with a loss of 4.5% over the same period (26.11.2012 to 22.11.2013).

The Mid-Cap funds also did not have an impressive performance. The HDFC Mid-Cap Opportunities Fund (G) gave a return of 4.8% while SBI Emerging Businesses Fund (G), which is managed by R. Srinivasan, gave a loss of 6.4% over the same period.

IDFC Premier Equity Fund – Plan A (G), managed by Kenneth Andrade, also underperformed with a return of 4.1%.

As opposed to all these managed mutual funds, if you had invested in a passive EFT like the Kotak Nifty ETF, you would have taken home a return of 5.8%. The IIFL Nifty ETF gave a return of 7.9% over the same period.

This issue raises the debate whether one should not just invest in Index funds instead of investing in managed mutual funds. The advantage of investing in an Index fund is that you get to invest in the best and leading companies and you pay very low cost. Over a period of time, the Index funds out-perform most of the managed funds, as the present experience has shown.